Liquid fuel and chemical producer, Sasol, is set to release interim results on the 9th March, in which the impact of lower oil prices will more than offset the benefit of a deprecating rand.
Against the comparative interim period, in the previous financial year, the rand averaged a 9% depreciated value to the U.S. dollar, while the average price of Brent crude was recorded at just short of 19% lower over the same period. The price “war” between the Organisation of Petroleum Exporting Countries (OPEC) and U.S. drillers has resulted in high levels of oil production in excess of the current level of demand and in turn a lower realised price of the commodity in question. OPEC actions to maintain these production levels have impacted the company’s earnings as it would that of a U.S. driller, although the company’s stronger cash flow and less leveraged balance sheet would allow it to absorb the impact better than smaller U.S. producers, a number of which have already halted drilling activities.
With the aforementioned in mind, Sasol has already advised that it is formulating plans to combat the effects of a pressured oil price in aid of preserving cash. Amongst these plans will be a slower paced progression of the U.S. Gas to Liquid plant being built and a revised dividend policy.
The change in dividend policy from progressive (where dividend is maintained or increased over time) to a cover range (as was applied from 2008 to 2014) has initially been met with disdain by investors committed to a healthy yield from the company. The upcoming results will see a keen focus on the magnitude that the proposed dividend is adjusted (lower).
The company has guided that the earnings per share (EPS) range is expected to increase by between 51% and 57%. However the omission of one off items, impairments and payment expenses (share-based) dramatically reduces the EPS figure to an expected decrease of between 21% and 27%. The Headline EPS figure for the interim period is expected to be 3% to 9% higher.
A poll of twelve analyst’s, surveyed by Thompsons Reuters, have an average rating of buy for Sasol, perhaps alluding to the extent of the recent decline in Sasols share price relative to the upcoming results being exaggerated.
