Research archive for SOL

Resources were lower, although on the whole it was a single company that was stinking up the joint, Sasol. The company gave guidance for the full year that ends at the end of this month, the stock by the time the day had ended was nearly 11 percent lower. Holy you know what. Why? The guidance in earnings included another write down of their British Columbia shale gas asset in the Montney shale basin.

Sasol have released results this morning at face value look OK, the dividend was cut in response to lower energy prices, that is understandable. They do however say that they expect oil prices to remain lower for longer, echoing what we heard from Impala Platinum last week, we are in an environment of lower prices for longer, when it comes to commodity prices. Without sticking their necks out too far, the expectations are for oil prices to remain low until the end of the 2017 calendar year. The truth is that nobody really knows, a major supply disruption or suddenly heightened conflict in an oil rich region may send the prices higher. US shale producers have been racking up a lot of debt, there is no doubt a lot of consolidation that will take place in the oil and gas sector across the smaller independent companies in North America in an attempt to "stay alive", I mean that in a business sense.

We had a trading statement from Sasol this morning, Trading Statement For The Financial Year Ended 30 June 2015. Given the slide in the oil price their HEPS are expected to be down 14% and 19%, with normalised basic earnings expected to be down 26% to 31%. The numbers are better than the market was expecting, the stock is up 4% this morning. The weaker Rand has been a good hedge for the company helping slow the drop in the Rand cost of oil.

The Sasol chief David Constable will not be renewing his contract when it expires next year. He will be staying on as a consultant however, ironically closer to his family. The news filtered through two days ago. In an increasingly global world it is possible to commute and that is exactly what he has been doing. He is Canadian, turns (or turned) 54 this year, and has been at the company since his appointment in July of 2011. Prior to working at Sasol, Constable was at Fluor Corporation, the US engineering and construction company, that are specialists in the oil and gas industry, he is a civil engineer by trade.

Sasol released their results for the six months to end December this morning. At face value they look OK. If you make sure that you exclude the impact of re-measurement items, earnings attributable to shareholders decreased 23 percent from the period prior. That is probably a better measure. The Rand was 9 percent weaker when measured against the corresponding period, 10.99 when compared against 10.08 Rand to the US Dollar. Reminder, this morning it is in the region of 12 to the Dollar, see above with the strong Dollar. The dividend, which was a large anxiety point after Sasol had made a supplementary SENS telling everyone about the cash conservation policy, was possibly better than expected at 7 Rand a share, 12.5 percent lower than the prior period. Not bad I guess, obviously the much weaker crude prices in the first half of their second half (partially offset by a weakening Rand) means that earnings are likely to be far lower in the second half of their financial year.

Sasol with a fairly simple announcement that sent the share price reeling yesterday, it had recovered a little by the end, it was however not completely unexpected. The release is titled Change to dividend policy and segmental reporting and that pretty much sums it up. Why the big reaction? I mean, lots of the news was known already, the company had already released a trading statement 12 days prior. David Constable had however said the year prior, that bar for a catastrophe, the company would never pay a lower dividend. In other words they would match the dividend from the year before. I guess you could argue an oil price halving is a catastrophe. In the same release the company explains a 5 point plan to conserve capital, improving margins, further cash cost reductions, the usual response to tough times. More will be revealed at the interim results presentation on the 9th of March. The announcement precipitated a 10 percent drop in the share price, in a hurry, the share price ended the day down just under 6 percent, phew.

Sasol released a trading statement on Friday that made for "interesting" reading. You can catch the whole thing here: Trading statement for the six months ended 31 December 2014. At face value the trading update looks decent, especially in light of the falling oil prices. In fact, as Sasol points out in the trading update: "profitability was negatively impacted by 19% lower average Brent crude oil prices (average dated Brent was US$89/barrel for the six months ended 31 December 2014 compared to US$109,83 in the prior comparable period)." If you needed reminding, if the average price of Brent was 89 Dollars for the half ended December 31, we are over 20 percent higher from the late January lows right now, yet Brent is still below 60 Dollars a barrel. There are several accounting changes that have led to some write backs, some write downs, a monster reversal of a share based payment expense (of 2.5 billion Rand), many moving parts. Guidance given for the full year will be when the results are released, which is expected to be Monday the 9th of March. 4 weeks today.

Sasol have released a presentation titled Sasol Site Visit of their Lake Charles facility. It gives you a good idea of what the products are going to be, similar to Secunda. Low cost feedstock, obviously the oversupply of natural gas in the region means better prospects of higher margins for Sasol's operation here. Have a read through, I still maintain that having a sizeable North American operation that competes against other majors in the US means a different set of investors. A different set of investors that are willing to pay higher multiples for the same earnings. Good work Sasol.

Sasol have just stuck out an announcement, something that I guess was to be expected a little. In response to lower oil prices, the decision with regards to give the final phase of the Louisiana investment, the gas to liquids plant (and not the Ethane cracker, that part IS going ahead) has been put on the back burner. David Constable said in the release: Albeit at a much slower pace, we will continue to progress the U.S. GTL facility. This will allow us to evaluate the possibility of phasing in the project in the most pragmatic and effective manner. The Sasol share price is up over two percent, even whilst the oil price is falling, this is quite possibly a response from the market suggesting that the dividend is going to be OK, for the time being. I guess it is not great news for global expansion, it is a reminder that their prospects in the medium term are determined by energy markets.

Sasol made the much anticipated announcement yesterday that they were proceeding with the ethane cracker, see the official media release: Sasol announces final investment decision on world-scale ethane cracker and derivatives complex in Louisiana. There you go. An investment of a whopping 8.1 billion Dollars. At the current exchange rate (10.945 Rand to USD) it is 88.65 billion Rand, around 24.7 percent of the entire market cap of the existing business, as the market values it currently. This is huge. And of course, a decision will be taken in due course on the GTL plant, that is still a long way off, for now this is the news to focus on.

I cannot believe that it has been more than ten years since Sasol listed on the NYSE, I remember that day, Ernie Els bought the first share (yes, really!) and he was interviewed by the networks on the floor. Another bigger event happened that day, the US armed forces and in particular a tank had attached a chain to a Saddam Hussein statue in Baghdad and the whole thing toppled over. It was pretty dramatic, obviously the falling statue of Hussein was going to trump the Sasol listing, even though it should not have. Don't ask me my opinions about wars and violence, it deflates me.

Sasol. The company that many South Africans associate with the fuel industry and possibly one of the most recognisable businesses in these parts. The company has released results for the full year to end June 2014. They are pleasing, records all around, headline earnings at 60.16 Rand a share (up 14 percent), the dividend increasing 13 percent to 21.5 Rand per share (18.275 Rand after tax, 11.475 for the second half). I quite enjoyed the prepared comments from CEO David Constable (whom I also like quite a lot), who said the following:

Talking Sasol, some good news on the fines front. You will recall that Sasol bought a European chemicals business years ago, one of those divisions was involved in a paraffin wax cartel and fined 318.2 million Euros. They paid by January 2009, but applied to the European courts in Luxembourg for a reduction. Which was subsequently granted, the fine was reduced all of five and some more years later to 149.98 million Euros, meaning that the European Commission owes (according to the ruling) Sasol 168.22 million Euros. Which is 2.459 billion Rand at current levels.

Sasol were in the news yesterday, via their website: ENH and Eni announce pre-feasibility study for large-scale gas-to-liquids facility in Mozambique. Eni Spa are an Italian based multinational oil and gas business with a market capitalisation of 73.87 billion Euros, or 1.079 trillion Rand. That is how huge Eni are, they are as close to a major by global standards as you can get.

Also there and forcing the oil price higher and higher are the conflicts in Northern Iraq. The only real benefactor of this on the local market Friday was a massive move northwards from Sasol, up 4.3 percent on the day. This is all attributable to the weaker Rand and the stronger oil price. Michael wrote about this impact last year, in a piece titled The Sasol Hedge fund, this paragraph is important: