Bongani Nqwababa. Picture: MARTIN RHODES
Bongani Nqwababa. Picture: MARTIN RHODES

Sasol, the top-performing stock on the JSE’s top 40 to date in 2018, is expected to benefit from a weaker rand, higher oil prices and the commissioning of its Lake Charles chemical plant in Louisiana in the US.

Sasol warned on Friday that headline earnings per share were expected to decrease by 16% to 26% in the year to end June, with its performance negatively affected by "several unplanned Eskom supply interruptions" and two internal outages at its Secunda Synfuels Operations, resulting in lower production volumes.

The group, led by CEO Bongani Nqwababa, also wrote down the book value of some of its assets by about R16bn, largely driven by the effect of a stronger rand during the year, as well as lower production volumes in Mozambique. It recorded a R3bn non-cash charge on its Khanyisa empowerment deal. Despite the write-downs, Sasol’s share price rose on Friday to outperform other big resource stocks on the JSE, bringing its year-to-date gain to nearly 18%.

The rise in the share price came amid elevated international oil prices and a weaker rand, two key variables that work in the group’s favour. Sasol sells most of its products in US dollars, though the bulk of its costs are in rand. Oil prices have steadily risen from multiyear lows of below $30 a barrel early in 2016, after major oil producers under the auspices of the oil cartel Opec and other producers curbed output to boost prices.

Sasol reported average prices for the 2018 financial year of $63.62 a barrel, up 28% from 2017. Brent crude was trading at $73 a barrel on Friday.

"The market is looking forward rather than at the once-offs from last year," said Craig Pheiffer, chief investment strategist at Absa Stockbrokers and Portfolio Management. "The actual core result may still be a bit disappointing, but prospects are boosted by the improved macro variables. We’ve recently added to our Sasol positions for clients and continue to see it as a core holding in local portfolios."

There is growing optimism among analysts regarding the company’s Lake Charles chemicals project where commissioning of the first unit is expected to start in the second half of 2018.

The project, which will produce 1.5-million tonnes of ethylene a year, tripling its production in the US, has had huge cost overruns in its four-year construction cycle, from an original estimate of $8.9bn to a projected $11.13bn. It has spent $9.8bn to date on the plant, which will transform Sasol, the largest producer of coal-to-liquids, into a global chemicals player.

"A lot has been pinned on the Lake Charles project, now at about 88% completion. As long as oil prices remain at current levels, there is potential for more upside," said Rob Pietropaolo, analyst at Unum Capital. "Some might argue that the share still has value to offer as no value has yet been attached to the Lake Charles project. We might very well see earnings upgrades start to come through as the project comes on line and oil prices remain above $60/barrel."

Sasol’s results are due on August 20.