Sasol’s rollercoaster: When a 99% earnings crash isn't the whole story

Key topics:EPS collapse driven by impairments, not just operational weaknessOil price drop and stronger Rand hit Sasol’s earnings hardImproving cash flow and volumes hint at operational resilience.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Alec Hogg.If there is one counter on the JSE that guarantees high drama, it is Sasol. It handsomely rewarded the tribe when we bought in the R20s after the stock was sold to near extinction in the initial Covid-19 panic. And has done us well recently, too, after the portfolios stocked up in the mid-R70s. For decades, the fuel and chemicals giant has been a retail investor’s favourite, serving as a good proxy for the Rand and the oil price—a volatile cocktail that often leaves stockholders either cheering from the rafters or nursing a severe hangover.This morning’s trading statement for the six months to December 2025 suggests we’re back in the ‘morning after’ mood, at least at first glance. But as is always the case with Sasol, the devil is in the details.The headline numbers are undeniably ugly. Earnings Per Share (EPS) have all but evaporated, with expectations of a crash by 89% to 99% - somewhere between 80c and R1 a share. When compared with the R7.22 reported the year before, it looks like a bloodbath.However, seasoned Sasol watchers know that EPS is often clouded by impairment noise—accounting entries that don't necessarily reflect the business's cash-generating health right now. A measure the market pays closer attention to, Headline Earnings Per Share (HEPS), strips out these nasties. Yet even here, the picture is sombre: HEPS is expected to fall by between 29% and 40%, landing between R8.50 and R10.00..The Macro Headwinds.So, what happened? In short, the macro gods were not smiling on Secunda.Sasol’s business model is essentially a massive leveraged play on oil prices and SA’s currency. When the Rand is weak and oil is high, Sasol prints money. But in the past six months, we experienced the exact opposite. The average Brent crude per barrel slumped by 17% in Rand. Furthermore, the basket of chemicals prices—often the unsung hero when fuel is down—did not come to the rescue this time, dipping 3%.To rub salt in the wound, the Rand strengthened during the period. While a stronger currency is great for importers, keeping a lid on South African inflation and motorists, it is kryptonite for Sasol’s earnings translation..The Impairment Headache.Then there are more impairments—this time a massive R7.8 billion pre-tax hit.The most worrying aspect for long-term holders is the Secunda liquid fuels refinery. The Cash Generating Unit remains fully impaired, meaning every Rand of capital expenditure pumped into it during this period—some R3 billion—was immediately written off. It’s a sobering reminder of the structural challenges facing the synfuels business in a decarbonising world.Additionally, there is a R3.9 billion writedown on the Mozambique gas project. While the gas remains, the timeline for getting it out and monetised has been pushed back. In the world of discounted cash flows, time is money, and delays are costly..Green Shoots under Baloyi?.But—and this is a significant "but"—it’s not all doom and gloom. If you can look past the headlines of earnings carnage, there are signs that CEO Simon Baloyi and his team are tightening the bolts on the operational floor.Sales volumes are up 3%, a testament to better stability at the plants—a metric that has plagued the company for years. Refining margins have more than doubled thanks to better fuel differentials, and cost discipline seems to be biting.Perhaps the most critical line in the entire update is hidden near the bottom: "Overall free cash flow generation is expected to improve compared to the prior period."Right now, for a business operating in Sasol's area, cash is king. The fact that Sasol is generating more free cash despite a 17% drop in oil prices and massive accounting write-offs suggests this is a business that is becoming leaner and more resilient..The Bottom Line.Mr Market is likely to be skittish on this news, reacting to that eye-watering EPS drop. But value investors might look at cash flow and operational stability and take advantage of any sell-off.We will get the full picture—and a chance to grill Baloyi and CFO Walt Bruns—when the interim results are presented on 23 February. Until then, hold onto your hats. The Sasol rollercoaster isn't finished yet.

Sasol’s rollercoaster: When a 99% earnings crash isn't the whole story

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