The Sasol share price has given stock market investors a rollercoaster ride, plummeting from January to March and heading up again quickly to June. Sasol is listed on the Johannesburg Stock Exchange and is one of the most closely watched shares in South Africa. The underlying business activity does not appear to be the main, or only, driver of share price performance, with a recent update from Sasol on improvements failing to spur Sasol upwards. BizNews founder Alec Hogg picks up on the intriguing story of the Sasol share price ride in this interview with stock market fundi David Shapiro. – Editor
David Shapiro: It’s an intriguing story. We follow analysts that track Sasol and yes when the share hit R21, it was perhaps a ridiculous price. There are still a lot of vulnerabilities surrounding the company at that stage. They moved up pretty quickly as the oil price recovered to R70 – R80, where we felt that, according to analysts, was a reasonable price for it to settle until things change.
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Then all of a sudden, within a 10 day period from R70, they went to R170 on huge, huge volumes, which I couldn’t identify. I started asking questions. The background is that if an institution buys over a certain amount, you have to make some disclosures. The amounts that are tallied up came to about 12% to 15% of the issued shares of the company. Something like 75 million shares traded.
I was talking to Nick Kunze of Sanlam and Nick said to go to the ADR that’s trading in New York. ADR is like a proxy. I’m not going to go into describing what an ADR is, but for all intents and purposes, it trades in America as if it had a secondary relisting over there.
I found that massive amounts of volumes had gone through America as well. The number of shareholders in the ADR had gone from 270 to 31,000 within a very short period. This led us to believe that this was all part of the Robin Hood online broking fraternity, which had attracted a lot of new participants. They were going for all kinds of energy shares that had been bottomed down, not on energy shares – any share that had been bombed down. The conclusion was if you want to see where the trade had taking place and who’s been participating it seemed to be in New York rather than here, although I must say that there were a lot of participants as well.
Alec Hogg: Just repeat those numbers again, because they are really quite spectacular. 30,000-day traders, is that correct?
To be exact, 31,000 participants. In other words, that’s like your shareholder base going from 270 in America to 31,000 in the ADR. I don’t even know how many shareholders there are locally in Sasol, I doubt whether it comes to anything close to that. Unless they may be individuals, but I’m not sure that the JSE has got 31,000 private clients. It gives you an idea of the level of activity that we saw in a market that has been pretty dormant.
If you know, in our Biznews portfolio, we bought these shares of Sasol at R28. Are you saying to us they’re being artificially inflated by day traders in America and watch out because that R140 that it’s trading at the moment, may not last for very long?
That’s a difficult question because what’s happening now is they came out with a set of results recently. They still have huge debt, around about 170 billion debt. If they can overcome their debt by selling off some of their Louisiana projects, some of the operations there raise enough money. At the moment the danger is that they therefore are at the mercy of the bondholders, the people who have lent them money, who have been a little generous in what we call covenants. In other words, have undone those covenants.
Normally, anybody who lends you money wants to make sure that you’re going to pay back and therefore keeps a watchful eye on how you operate the company. They look at your profits, that you’re not wasting money or going in another direction. So they do have control. If you break these covenants, if you break these rules, they can demand the money back.
They’ve been pretty generous in allowing them to get back on their feet, but we still need to see debt come down by about 30 odd billion. If they can get over it, if they can overcome these short term issues, then there’s a good chance that they could be worth R150 – R160. That’s the other side of it. I was only addressing the speed at which the shares rocketed from R70 to R170 – R180 or something. They’ve come back to perhaps more acceptable levels, around about R140. A lot depends on operational issues now.
They would be trading through Robinhood, interactive brokers, TV America trade, Charles Schwab and all the other platforms that exist. Now we do pick them up from our market because without going into too many technicalities, the trade that takes place in the ADR has to be satisfied in real shares that come from South Africa. Those trades find their way back into our market as well as we satisfy the need for the issuer of ADR to find the script. In other words, to back what is sold on or what is being traded with a real script that’s moved across into that ADR account. We saw the trade on our market and Sasol has been together with Naspers, which is always up there, a very, very big trade or in our market recently.
