Research archive for SOL

This morning we have a trading update from Sasol and perhaps it is not what you expect. They are basically waving goodbye to Iran and their investment in Arya Sasol Polymers Company (ASPC). According to Wikipedia, ASPC is one of the biggest polymer projects in the world. But, if Sasol want to be taken seriously in North America, then they have to ditch their Iranian asset. This is not new news however, this asset has been for sale for a while now. The only burning question however is, who is going to buy this business? I suspect that the other shareholder, the state owned petrochemicals company could offer them a discounted price, take it or leave it. The Iranians can't divest from Iran. And not too many people are friendly in the region, due to religious differences between Shia and Sunni Muslims. And ethnic differences too. I shall never attempt to understand religious intolerances of one another, I shall always steer away from that subject, it spoils ones get togethers. And I would like to think that I have friends everywhere of every walk of life. End of story before I trip over my own tongue here!

You have to unfortunately watch the first part here, but the second part of a slot on FastMoney last evening on CNBC featured none other than Sasol. The video is titled: Energy Independence: Nat Gas to Liquids. Andre de Ruyter talks to Melissa Lee. Now, there is absolutely nothing earth shattering about anything that Andre says, or the questions that Melissa asks. BUT, the profile of Sasol is important for me. If through a real production facility in the USA, the company can attract a different set of shareholders who are willing to pay a premium for the company, that would definitely help. Because let's face it, the last bit of news from Sasolburg looks awful. All I am trying to say is that your stock can get a simple re-rating with a new set of interested shareholders.

The SASOL CHIEF FINANCIAL OFFICER UPDATE, 3 December was released yesterday. The highlights are many, including a production record at Oryx in Qatar, as well as another cracking (no pun intended) performance from Sasol Synfuels. The weaker Rand helped Sasol, the currency has of course weakened by 5 percent since the end of the Sasol financial year. And the Rand continues to remain weak, whilst the oil price has stabilized at these sorts of levels currently, which have been surprisingly stable. Amazing, in fact, if you think that for the better half of two years the oil price has been range bound and mostly in the 90 odd dollar range for WTI. Occasionally, like at the beginning of last year the oil price spiked when there were more than just a few issues in North Africa, the Arab spring. Sadly for the people of Syria, this is ongoing. It is disastrous to think that in a time like this, 2012, there are atrocities like that happening. I guess progress is relative to where you live.

Last year Sasol bought a 50% stake in Montney shale holdings from Talisman Energy for $2bn. The timing wasn't great. The gas price fell dramatically soon after the acquisition following a huge surge in production thanks to improvements in technology. This forced Sasol to take a big write down worth CAD120 million and depreciation worth CAD 171 million of these particular assets which obviously had a negative impact on earnings.

Sasol have released their full year numbers for their financial year to end June 2012 this morning. At face value they certainly look good. Turnover increased sharply to 169.4 billion Rands, costs rose, but the group seems comfortable with that, they say in-line with inflation, 8.6 percent. Production was much better in the second half, full year production was basically the same as last year. Operating profit increased 23 percent to 36.8 billion Rands, the average crude oil prices received increased 17 percent and the exchange rate weakened by 11 percent inside of the financial year. Headline earnings increased by a little more than that to 42.28 Rands per share, the dividend, and this is a big surprise, increased by 35 percent to 17.5 Rands for the full year. Dividend cover has been lowered (that is good) to 2.3 times. The final dividend has clocked 11.80 ZAR, expect just over 10 ZAR after dividends withholding tax. Listen to this, in direct and indirect taxes, Sasol paid 28.2 billion ZAR to the South African government. Anyone who calls for the nationalisation of the business (in my view for what it is worth) should be gagged immediately.

Still playing catch up from a disruptive public holiday week, today I'm going to cover the Sasol trading update which came in last week Wednesday. The release expects headline earnings per share to come in between 20%-30% higher than the prior financial year. This was a slight disappointment to the market following the nine month operational update released in June. The update indicated a 31% average rise in domestic fuel and an increase in production so the market had high expectations.

This morning Sasol released a very long and detailed update for the 9 months ended 31 March. Here it is if you would like to read it otherwise I'll give you a summary. Basically it covered 4 points, 1. Overall macro-economics supports group profitability, 2. Improved operational performance, 3. Financial performance 4. Project updates. Lets look at the highlights and some important points that stand out.

On Thursday Sasol slumped over 4% then on Friday it was down again, nearly 2%. One of the reasons for the drop was a forced clearance of the Sasolburg plant after spilled sulphur set off alarms. It doesn't sound like the spill was serious but of course there are very strict safety standards and anything remotely threatening will result in stoppages. According to this Bloomberg article a statement from Sasol suggests that production was in no way affected.

Sasol (SOL) reported numbers this morning for the half year to end December 2011. And it is a whopper, in part the currency weakened (average price for the period was 7.63 to the US Dollar) and in part attributable to the stronger oil price (average price for Brent crude was 111.41 Dollars per barrel), so for this company that is the perfect storm so to speak. Remember that for their chemicals business the input price is oil, so it is a double edged sword. But remember, for the time being the business is about Synfuels. Their synthetic fuels business, the part of the business that is the most famous one for them I guess. The part that most people know also happens to be the bulk of the profits. We like the company because they are a technology company and not a oil producer, but yet still have the same valuations as their "sector" peers.

Yesterday we had a very good, but also expected trading update from one of our long time recommended companies, Sasol. I remember at one stage we were seriously considering taking this company off the list because of the long term environmental issues, Sasol is the second biggest polluter in South Africa. But after closer inspection we saw a shift in the company's focus to the much less carbon intensive gas to liquids (GTL) process as opposed to the coal to liquids (CTL) method. Don't get me wrong, CTL is an integral part of the business but the fact that this company has an innovative alternative was reassuring. Not only are they extremely serious about sustainable growth as far as the environment is concerned but they also save the South African government R40bn a year in foreign exchange. This gives them a lot of bargaining power and keeps South Africa from being too dependent on volatile oil producing nations.

Another set of news, with not that much detail yesterday was that Sasol Germany to sell its German production site in Witten to CREMER. As you can see from the release, there is not too much other than the announcement. No price. And do not even try much harder beyond that, a search for Witten in the Annual Report reveals only one hit. And that is under their Sasol Olefins & Surfactants business division as a site only. And that, as they say in the classics, is about as much as I can help you.

And if this is not enough, all this corporate news, then a Sasol trading update will excite you no doubt! What, why now? You would be right to ask that question, after all the company has a June year end, so we are not even five full months into the current financial year. This of course would be a trading update for the first half to end December. I am pretty sure that each and everyone one of you would not want to fast forward through that month. And if you are a shareholder then it looks good for you, the weaker Rand, stronger commodity prices and perhaps more encouraging improved operational performance. The other two are variable, the other is internally controlled. To answer that question about why now, Sasol always do this, guidance and then revise that after the reporting period.

Yesterday Sasol announced a JV with an Australian company called Origin Energy which involves extracting Coal Bed Methane (CBM) in Botswana. If you are unsure what CBM is here is a brief explanation. "CBM is a clean natural gas by-product of ancient plant matter, trapped in underground coal seams. CBM production is a process of desorbing natural gas from coal using wells drilled for that purpose. The process of production is similar to the mine safety processes used in degassing coal mines. The water that is produced during the production process is pumped to the surface and treated so it can be disposed of or recycled for beneficial purposes such as agriculture."

Sasol, the largest company of its kind, anywhere in the world, reported their full numbers to June 2011 this morning. I was quite astonished that the average Rand to the Dollar exchange rate was the strongest seen for five years plus, since 2005. So this is where the notion of the strong Rand comes from. Although 2004 saw a much stronger currency, if I remember right, 5.65 to the US Dollar in latish 2004, around the same time as Hurricane Katrina.

Sasol released a trading update this morning for the year to end June 2011. Here goes a copy paste: "Expected headline earnings per share for the financial year ended 30 June 2011 to increase by between 22% and 32%, and earnings per share to increase by between 18% and 28%, compared to the prior year." Last year HEPS clocked 2667 cents per share, if you take the middle of the range at 26 percent higher on HEPS, I get to 3360 cents for the full year. Which roughly puts the company on exactly ten times earnings historic.