Our opinion on the current state of SOLSasol (SOL) is a massive international chemicals and energy company which has its roots in the oil-from-coal technology developed during the apartheid era in South Africa. About 50% of the company's profits are directly linked to the oil price. It has two main growth areas - its 50% stake in an ethane cracker plant in Louisiana, America, known as "Lake Charles Chemical Project" (LCCP), and its development of gas resources in Mozambique. Sasol was awarded two new licences in Mozambique to explore for gas in an onshore development of approximately three thousand square kilometres. This could significantly add to its existing gas projects in the Rovuma province.
One area of concern for Sasol is that it is the biggest producer of greenhouse gases in South Africa and on the JSE. It is listed as one of the 100 fossil-fuel companies world-wide that contribute to more than 70% of Greenhouse gases. The company remains under international pressure to deal with its carbon emissions effectively.
After the impact of COVID-19, the share made a dramatic recovery which was been brought to an end by the decline in commodity prices, especially oil. In its results for the six months to 31st December 2023, the company reported revenue of R136,3bn down from the previous period's R149,8bn mainly as a result of lower chemical prices and a weak oil price. Headline earnings per share (HEPS) fell 34% and net asset value (NAV) fell 2%. The company said, "Sasol’s performance for the first six months of 2024 continued to be negatively impacted by the continued volatile macroeconomic environment, with weaker oil and petrochemical prices, unstable product demand and continued inflationary pressure. Despite some operational improvements in South Africa, persistent underperformance of the state-owned enterprises involved in Sasol’s value chain and the weaker global growth outlook continue to impact Sasol’s business performance."
Obviously, the share initially benefited from Brent oil prices which rose to a high of around $127 per barrel but have since fallen back to around $82. Sasol remains a volatile commodity share and hence risky. The company says that it has now sourced 550mw of renewable energy - which takes it closer to its carbon emissions goals.
