David Shapiro on Sasol and Amplats bumper financials – analysis 

Sasfin Securities David Shapiro talks commodity counters on a day where two JSE resource heavyweights, Sasol and Amplats, released solid financials. The resource counters have been a major contributor to the performance of the JSE All Share Index, with supply-demand imbalances resulting in persistently higher commodity prices across the board. Sasol and Amplats announced strong results, largely expected by the market, with Amplats R300 total financial year dividend the highlight in the commentary. Strong Brent crude and chemical prices into the second quarter will continue to be a tailwind for Sasol, with management indicating the importance to reinstate dividends, but only when the debt has been shaved to acceptable levels. – Justin Rowe-Roberts

David Shapiro on a high-level analysis of Sasol and Amplats financials

When you look at commodity companies, what is under their control is production and costs. What’s out of their control are pricing and the currency movements. So, you have to measure all of those together. Both companies had blowouts in terms of pricing. Sasol was supported by a massive increase in the Brent crude price and a large increase in chemical prices, which was in their favour. But credit to management, having turned the ship around, aided and abetted by much stronger oil and chemical prices. Now you say, how do we look forward? Are they on the right track to keep that going? Possibly, yes. I believe they will. Will we see the kind of returns we saw this year again? No, you cannot expect that. But I’m pleased that management is on the right track. They have brought down debt. They still have massive debt – don’t ignore it – but they generate the kind of cash that can actually reduce it. You have to make a call on where you think the oil price is going. I think it will hold up at these prices. The rand will hold up. Now it’s up to operational efficiencies for them to produce decent profits. They’ve got it; they are coming off a low base. They had bad production in South Africa. They can improve that. They are still getting Lake Charles right so they can improve that. Management decision making will be key.

On Sasol becoming a more focused chemicals producer  

There’s a very tight connection with industry and the products they produce. So, if you think that there will be global growth and demand is going to be there, then you’re on the right track. They can maintain those margins and do well. Oil is much more difficult to read; the production of oil and the refinement of oil. Chemicals is a much more sustainable business. That is why they shifted away from gas to liquids to much more on the chemical production side of things. I am generally bullish. I know we’re going through a quite a rough time now with the news. It’s not easy to digest from inflation to the Russia/Ukraine problem and that, but overall business investment looks robust and I think we’re in for a good period of business investment. I don’t want to say investment because that suggests investors like you and I are buying some shares and that. I am talking about business investment, the fixed stuff that goes into building factories and businesses. That is pretty robust at the moment. I’m quite positive on the outlook for commodities in that area … the business investment side of things.

On whether Sasol Net-Zero 2050 ambitions is a reality or a tick-box exercise

I hope it is a reality, but getting there is going to be a lot more difficult. It’s a big argument. The big debate is whether we can give up fossil fuels; whether we can go into sustainable energy and renewables. It’s so difficult for us to give that up at this stage. It is going to be a big ask. But you need tough government and tough management to get there. Have we got it? I don’t know. It is very easy to concede when things look tough, you concede and I still think it’s going to be a rough path to get there. But at least it’s there and they will report to it and one can address them and attack them every year or every six months on that.

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