Sasol anticipates sharp decline in headline earnings of up to 77%

Sasol anticipates sharp decline in headline earnings of up to 77%. According to analysts, the company’s shift to becoming a chemical business in the last five to eight years has been a major factor affecting the bottom line.

The fuel and chemical maker is set to record a net loss of R55.8 billion mainly due to impairments. These include the Chemicals America business and Chemicals Africa’s operations.

Its Secunda liquid fuels refinery remains fully impaired as of 30 June 2024.

Sasol is expected to make a massive loss amid a challenging operating environment.

According to Benguela Global Fund Managers Zwelake Mnguni, the company’s shift towards becoming a chemicals-focused business has made it highly reliant on chemical prices. The industry recently saw prices slide due to geopolitical tensions in the Red Sea.

“The key driver has been the fact that Sasol has become a chemicals business in the last say 5 to 8 years. And because of that they are highly dependent on chemical prices which peaked around 2022 and they have put pressure on their margins as a result,” says Mnguni.

The group highlighted that stronger rand/oil prices, improved refining margins, and higher sales volumes provided some relief. It says its improved operational performance in the fourth quarter contributed to its overall stronger performance in the second half of the financial year.

Meanwhile, the company’s share price was down 3.3% by midday following the release of the trading update.

Senior market analyst at IG South Africa, Shaun Murison, says the negative news has been factored into Sasol’s share price.

“When you look at analyst rates, things, the suggestion is that the price is quite undervalued at current prices. I think the consensus estimates are long-term fair value assessed about 249 a share. But when you do look at a technical picture, when you look at the charting on the trading world and the price is stuck in a short-term range and that range sitting about R116 share to about R149 a share, we’re just off the lows of that range at this point in time. And we are trading at the height of the day. So perhaps a lot of the negative news is being priced in right now and hopefully, we can see a bit of a recovery going forward, but obviously the risks remain,” says Murison.

Sasol will report its full-year earnings on Tuesday next week. This latest setback comes after the Constitutional Court dismissed the group’s application for leave to appeal. This in regard to decades-old gas price gouging allegations.

Video: Company News – Sasol headline earnings set to decline: Shaun Murison