Sasol slides almost 10% in its earnings forecast

Shareholders warned of lukewarm profits for the year as shares declined to close at R77.11 on Friday after reporting headline earnings would likely fall up to 20%, writes Dineo Faku

SASOL tumbled nearly 10 percent on the JSE on Friday after it warned its shareholders to brace themselves for an earnings slump for the year ended June 2020.

Sasol, which operates the Lake Charles Chemical Project in the US and the Sasol Secunda Synfuels operations in Mpumalanga, fell

8.4 percent to close at R77.11 after reporting that headline earnings and earnings per share would both likely fall up to 20 percent.

The group said it would update the market as soon as it was certain of the percentage declines in the earnings.

“Our 2020 financial results may be impacted further by adjustments resulting from the year-end closure process, which may result in a change in the estimated earnings a share and headline earnings,” Sasol said.

The forecast came as the company faced headwinds on global oil price volatility which reached historic lows last month when the West Texas Intermediate (WTI) said the US benchmark fell to below zero a barrel. The dramatic fall in the WTI also affected Brent crude oil prices as the coronavirus travel restrictions curtailed demand and fears of a global recession fuelled panic.

The WTI and Brent crude oil prices have since rebounded as the restrictions eased in most countries and economies reopened.

Lester Davids, a trading analyst at Unum Capital, said Sasol’s performance was reflective of the turbulent 12 months in which oil price slumped significantly from an average price of $65 to a recent low of around $16 per barrel.

“The announcement of a decline in earnings of more than

20 percent was expected by the market however the results, which are to be published on August 17 will indicate how much more than a 20 percent decline Sasol suffered,” said Davids.

Davids said the plummeting Sasol shares also took into account the group’s potential for a capital raise of up to $2 billion – a corporate action which the market anticipated.

“In addition, the group is engaging in asset disposals which is meant to ease the burden of the strained balance sheet and free up additional cash resources,” said Davids, referring to a range of selfhelp measures introduced by the group to help mitigate the impact of Covid-19 on its business.

Sasol implemented a range of self-help measures, including the disposal of non-core assets and the rights issue in March to cushion its balance sheet from the low oil price environment.

The company also announced a hedging programme that was set to tackle the plummeting prices.

Last month, Sasol reported an unprecedented decline in fuel demand, prompting it to suspend production at the Natref refinery in Sasolburg which it operates jointly with Total South Africa.

Michael Treherne, a portfolio manager at Vestact Asset Management, said Sasol’s move to implement a hedging programme in March to tackle the plummeting prices had somewhat helped the group, however, demand for its products remained low.

“They (Sasol) have hedged their oil exposure, meaning that if the oil price goes up or down a lot, it doesn’t change much in their life.

“Probably a bigger factor for the company is that people are not using their products as much,” said Treherne.

| WALDO SWIEGERS Bloomberg VAPOUR rises from the cooling tower of the Sasol Secunda coal-to-liquids plant in Mpumalanga. At 56.5 million tons of greenhouse gases a year, Secunda’s emissions exceed the individual totals of more than 100 countries, including Norway and Portugal, according to the Global Carbon Atlas.