Sasol six month results

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.

The interim dividend cover was lowered to 4.6 times from 3.8 times (in percentage terms that is over 20 percent lower), the full year dividend cover is in the region of 2.3 times. Meaning that if the analyst community are expecting around 35 Rand in earnings this year, less than 30 Rand next year (who knows where the oil price is going to next) then the stock at 410 Rand is about right. Presuming that next years number could match this years number of around 35 Rand a share, the dividend for the full year might be around 15 to 16 Rand. Meaning that forward the stock trades currently on a less than 12 times earnings, with the dividend yield of somewhere in the region of 3.6 percent before tax. That is not exactly dirt cheap, nor is it wildly expensive. The price will move as a function of the oil price in Rands, in other words, the stronger the oil price and the weaker the Rand, the better it is for Sasol's earnings prospects, the reverse is also true.

The important take away from these results are that cost savings are going to be more aggressive, the company needs to conserve a lot going into 2017 (80 percent of the money for the ethane cracker at Lake Charles in Louisiana has been secured thus far), in what will effectively be a company transforming investment. In order for the company to take advantage of much lower gas prices in North America, as feedstock to the ethane cracker, they have to have that North American investment. Equally, between now and then, the company is at the mercy of factors beyond their control, they can control capex on other projects and save costs. They are in typical Sasol style, being conservative and making sure that they can ride whatever the market throws at them. Under the circumstances, not a bad set of results, the future is a little clouded like their outlook. Of course, the future is always clouded.