Belinda Anderson
Energy group Sasol predicts that it will earn at least R12 a share for the year, which at a share price of R60 is a price to earnings ratio of five, compared to a market price to earnings ratio of about 13.
In other words, it would theoretically take investors just five years to make their money back, versus the 13 years from the average market. An interim dividend of 140c will be paid out and CEO Peter Cox also says future dividends will reflect the company’s growth plane.
When the results were announced last week the share reacted by reaching a high of R69. If you were lucky enough to have bought Sasol shares at its low point in April last year you would have almost doubled your money.
The trend seems to suggest the market is beginning to see more value in the company.
Investors sometimes tend to see Sasol as purely a play on the oil price, which is true in the sense that it is affected by fluctuations, but its earnings base is diversified enough not to be entirely dependent on high oil prices. It has also acted to cuts costs and improve efficiencies over recent years to reduce this dependence.
For Sasol the oil price is a double-edged sword it wants to be able to sell its fuel at as high a price as possible, but it also wants the price of its feedstocks to be as low as possible; which in the case of higher oil prices has a negative effect on its profits in some areas. A higher international oil price means the Synthetic Fuels division gets to sell at a higher price, even to Sasol Chemical Industries, which conversely benefits from a lower price.
Currently two of Sasol’s greatest trump cards are its purchase of Frankfurt-based Condea (giving it a presence in the chemicals market in Germany, Italy, the Netherlands, the United States and China) and its natural gas reserves. Its first trump card, and the one that has been a large contributor to its success, is its unique Fischer-Tropsch process of producing fuel (mostly very high-quality diesel fuel) from coal, in the process deriving valuable chemical by-products such as alpha olefins.
According to communications manager Alfonso Niemand, Sasol’s coal reserves are sufficient to keep it going for more than 30 years. But an alternative source of energy, one which is far more efficient and environmentally friendly, is natural gas.
Sasol recognised its potential as a feedstock in 1997 with the joint venture with the gas fields of Qatar in the Middle East and later its venture with Chevron in Nigeria.
And Sasol’s unique gas-to-liquids technology makes it an ideal partner for other international corporations wanting to tap into gas as a power source.
Sasol then started edging its way into Mozambique, where a significant proportion of the world’s gas reserves are to be found. The construction of Sasol’s 930km pipeline from Vilanculous in Mozambique (the Temane field) to Secunda begins in June or July this year.
Sasol’s current gas reserves from the two fields in Mozambique alone are sufficient to supply its plants for about 20 years.
Condea has been on Sasol’s books for only a week now, and Cox expects that it will have a marginally dilutive effect on profits only for the remaining four months of this financial year and the whole of next. But he is even more pleased than he expected to be with the company and its potential value to Sasol.
“I think it’s going to be a contributor to our bottom line a lot sooner than we had envisaged when we first were interested in it. Now that we’ve got closer to it we’ve been the owner of Condea for a week now I’m very impressed, not only in the quality of the assets, but particularly with the quality and depth of the people. I think that speaks very well to realising the synergies, the enthusiasm that we have encountered among the Condea people, the wish to identify now with a company such as Sasol. I think this augurs well for the future,” Cox said.