Long term shareholders in Sasol have had some rather rough rides. As the Global Financial Crisis took a grip in mid 2008, the oil-from-coal company’s share price halved from R498 in a few months. When the global oil price collapsed six years later, Sasol’s shares fell almost as much. But for a single session of trading, nothing in almost two decades matches the gloom of yesterday’s price plunge from R485 to R432. Investors were blindsided by the announcement of a double hit from North America – the region where Sasol’s recently departed Canadian-born CEO was betting its future. The massive Canadian shale gas write-off and big cost overruns on its Louisiana cracker are extremely bitter pills for Sasol shareholders to swallow. Few will be surprised CEO David Constable threw in the towel a year back. But you have to ask about the accountability of those who appointed him – and those who approved his market-topping remuneration. Once again this looks to be a case of investors picking up the tab after a highly paid executive happily sails off into the sunset. And as there are rarely just two cockroaches in the kitchen, there is probably worse to come. – Alec Hogg
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(Bloomberg) —Â Sasol Ltd. dropped the most in more than 17 years in Johannesburg trading after saying fiscal full-year profit will drop by as much as 30 percent following writedowns.
The South African fuel producer reported impairments totaling 11.5 billion rand ($770 million), citing the collapse in energy prices. The shares fell 11 percent to 432.52 rand by the close, the biggest plunge since Oct. 1, 1998.
“The volatile macroeconomic environment, in particular lower crude-oil prices, has had a significant impact on earnings,” Sasol said Monday in a statement. Headline profit will fall by 10 percent to 30 percent in the year through June from 49.76 rand a share a year earlier, it said. Analysts surveyed by Bloomberg had estimated a 26 percent slide to 36.58 rand.
Sasol impaired its share in the Montney shale-gas properties in Canada by 7.4 billion rand in December. It will now recognize a further writedown of about 4.1 billion rand because of lower natural-gas prices, which have fallen 12 percent since July last year. Brent crude, to which the producer’s revenue is linked, has dropped 20 percent in the period.
The Johannesburg-based company will give a further update on operational and financial performance in early August and is due to report full-year results Sept. 12.
Extra $3b CAPEX on Sasol's Lake Charles Chemicals Project is approx 15% of its market cap. Based on Fridays close of R485, price target R415
— Devin Shutte (@devinshutte) June 6, 2016
Market Volatility
Sasol has implemented programs to conserve about 75 billion rand of cash through 2018. The company expects production volumes and cost reductions to be better than previous forecasts, it said Monday, adding that energy-market and exchange-rate volatility may further affect results.
The company has delayed a decision on whether to build a gas-to-liquids plant in the U.S., which would have cost as much as $14 billion, but also raised the projected cost of a chemicals complex in Lake Charles, Louisiana, to as much as $11 billion from about $8.9 billion amid construction delays.
Expected returns from the chemicals project, which will convert ethane into plastics and other products, have been reduced. Sasol now sees returns at around its weighted average cost of capital, which stands at about 10.6 percent, data compiled by Bloomberg show.
Read also:Â Sasol delays $8.9bn US chemical plant units as profits slump 63%
The company has already invested $4.5 billion in the Lake Charles development, with more than 40 percent of the project completed. It expects the ethane cracker to reach “beneficial operation” in the second half of 2018.
“The change in the return profiles of the project have caught us a little flat-footed,” Mohamed Kharva, a research analyst at Nedbank Group Ltd., said by phone. “It’s slightly negative and I think the share price has responded in that fashion.”
