Sasol’s share price fell by nearly 9% yesterday after it said it expected its interim profit to double for the six months ended December 31, 2022, which analysts said was “well below market expectations”.
The group’s share price on the JSE dropped to an intraday low of R278.01 in early morning trade, recovering a bit higher later in the day.
In a trading statement, Sasol said it expected to report earnings per share (Eps) of between R21.55 and R23.98 for the six months under review, a decrease of 0% to 10% on the Eps of R23.98 reported for the prior comparable period.
Headline earnings per share (Heps) were expected to improve by more than 95% to between R29.84 and R31.36, compared with the Heps of R15.21 reported for the prior comparable period.
Sasol’s adjusted earnings before interest, tax, depreciation, and amortisation (adjusted Ebitda) for the period under review were expected to be in line with the prior half year of R31.8 billion.
Sasol expected to deliver a mixed set of results for the period under review, benefiting from the stronger oil price, refining margins and a weaker rand/dollar exchange rate.
“This was, however, offset by the impacts of weaker global economic growth, depressed chemicals prices, and higher feedstock and energy costs,” it said.
Sasol’s South African operations also experienced several operational challenges, most notably in the mining business, where coal productivity and quality had been below plan.
“This was exacerbated by supply chain constraints related to poor rail performance, unavailability of port infrastructure impacting our sales volumes, as well as, power outages impacting our suppliers and customers,” it said.
Sasol noted several non-cash adjustments for the period, the first being R7 billion in unrealised gains on the translation of monetary assets and liabilities, as well as the valuation of financial instruments and derivative contracts.
Additionally, the remeasurement of items amounted to a net loss of R6.4bn. The group said cited the R8.1bn impairment of the Secunda liquid fuels refinery cash-generating unit (CGU) as part of the reason.
Another impairment of the Essential Care Chemicals CGU in Sasol China of R9bn resulted from a combination of lower margins and higher costs largely due to the impact of China’s zero Covid-19 policy.
Sasol also mentioned the reversal of an impairment processed in 2019 on the tetramerisation CGU at Lake Charles, in the US, of R3.6bn, owing to a sustained improvement in plant reliability.
Sasol will release its 2023 interim financial results on February 21, 2023.
Anchor Capital investment analyst Seleho Tsatsi said Sasol’s trading statement was well below expectations.
“Furthermore, this miss comes after Sasol reduced its volume guidance for FY 2023 (financial year) in the trading statement it released in December 2022.
“Optically, the share appears cheap, but the continual operational challenges are unlikely to drive a re-rating in the short-term,” he said.
Meanwhile, Umthombo Wealth equity analyst Matthew Zunckel said the earnings guidance given in the update was well below market expectations, despite looking like decent growth at first glance.
“The pricing environment for Sasol’s fuels and chemicals business has been quite favourable over the past year, and this did not reflect in the earnings numbers to the degree expected.
“Company-specific issues, particularly in the group’s mining business, are significantly offsetting any benefit gained from higher chemical and fuels pricing. The company is facing a multitude of issues which the market has clearly underestimated, such as productivity in the mining business, supply chain constraints, and Transnet logistics issues,” Zunckel said.
He said the share price dropping reflected the market pricing in these issues.
“Lower than expected earnings also means expectations for deleveraging of the balance sheet, and the dividend, need to be re-evaluated,“ he said.
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