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Sasol’s executive team has to work hard to bring down the company’s R180bn of debt, which is mostly in dollars. South Africa’s favourite stock market commentator David Shapiro says debt of this size makes everything else in the business become secondary. This follows the release of Sasol’s annual results this week. Shapiro joins Alec Hogg to discuss investing in Sasol, and Warren Buffett’s curious move to gold, which has many investors scratching their heads. – Claire Badenhorst
Investor’s beware: Sasol is on shaky ground
I’m Alec Hogg and with me, as always, on a Monday at noon – David – very good to have you in studio. On the market, we got announcements out of Sasol. You can see, Sasol has actually moved below that moving average. So, some would say watch out.
On pure fundamentals, I think be careful. There’s a very thorough presentation today and you can pick it up on the internet, which Sasol have produced, and they go through their results. And Alec, this is a debt issue. And this is what’s going to drag down. They did say for the first time, they mentioned that they might have a rights issue, but it’s only going to come in the second half of the year, which is from January to- remember, this is the financial year which ended on the 30th of June. So, their big issue is that they’ve got a R180bn of debt, most of it, 170 odd billion, which is in dollars. And they’ve got to work very hard to reduce that.
They have got their asset sale programme. They’ve also tried to cut costs and get on top of other issues. They can generate income. They’re very happy if oil remains over $45 a barrel. Then, it does put them in a fairly good position. But I think they mentioned that, you know, they could have a rights issue of up to about $2bn, but they’ll announce that only come January.
No room for growth
So, I think this is a company which has to manage debt. And Alec, the big issue for me is that when you’ve got debt of this size, it takes away, and your focus is to reduce debt.
“It takes away from expanding the business. In other words, all other projects of expanding your operations become secondary.”
You know, your focus becomes on reducing debt. So, from that point of view, I just take a step backwards and say it’s not for me. It’s for those who, you know, who are going to take a bet on whether they can overcome debt, which, you know, we’ll only find out in time. So, I’m a bit cautious.
We spoke about Sasol, Dave. You’ll remember very well. The concern was that there were a lot of day traders who were involved. On the Sasol website, if you go to ‘Investor Centre’, you hit ‘Overview’ and this is the page that will come up, and there you’ve got Sasol’s annual financial results for the year ended 30th of June. Go and read that. Way ahead of everything that any of the reporters are trying to take tomorrow morning. And we’ve always believed, David and I, that it’s the best thing to actually go and do your homework yourself. And here’s a way of doing it. Pretty simple stuff, isn’t it, Dave?
Absolutely. And you get it from the horse’s mouth. You’ve got Fleetwood Grobler giving you an overview and he tells you exactly what it is. Alec, for people who are watching this or listening, the best information you get is a website. Now, you have to understand a company cannot release any information to a group of analysts or to anybody without making it available to the public.
So, the point that I’m making is that if you need information, go to the source. You know, go to the company website. You’ll find that there’s an incredible array of of information there. And the best source, because this is from the company, so you can draw your own conclusions. And they explain in great detail the debt situation. So, you can make up your own minds about, you know, where they are.
Warren Buffett’s curious shift to gold
So, it’s a long time that you’ve been following Buffett very closely. This move of his. He doesn’t like mining stocks, he certainly doesn’t like gold and yet, he is now a $600m owner of Barrick Gold Corporation. What do you make of it?
Well, for me it’s like when Dylan went from acoustic guitar to electric guitar and there was that famous audience shout, you know, ‘Judas!’ And for Buffett to go gold is just stunning, you know. He always made that comment, they dig this from the bowels of the earth, and then they dig another hole and place it in there and watch it, and pay people to watch it. In other words, gold never changes shape. If you put all the gold that has ever been mined in the world, you can get it into a swimming pool- I’ve got all the quotes. And suddenly he’s buying Barrick.
But I have to say one thing. Mark Bristow’s great and I like him. I heard him the other day and he’s not getting carried away with the gold price at these present levels. He’s very sober. He knows what happens to gold and he’s positioning this mine probably at $1,200 or $1,300 gold price.
*For the full video, including Piet Viljoen who shares his ‘local is lekker’ perspective of South African investment opportunities, visit our BizNews YouTube channel here.
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