Sasol sheds 5% after trading update falls short of expectations

Sasol’s share price fell 5% to R415.05 on Wednesday following a trading update that disappointed market expectations.

Sasol said it expected to report on February 25 that its interim headline earnings per share (HEPS) for the six months to end-December grew in the range of 12%-29%, implying about 20%.

Investors appear to have expected the coal-to-liquid fuel producer to have benefited more from higher international oil prices and a weaker rand. 

The share price recovered to R433.30 a share by Wednesday afternoon.

“Our underlying cash-flow performance and earnings are expected to be much stronger than the prior period.”

Kagiso Asset Management’s Abdul Davids said the trading statement “appeared light” relative to consensus expectations and given substantially higher rand oil prices. “The rand oil price is about 40% higher compared to the corresponding period in 2017,” he said.

Diversified resources analyst at Avior Capital Markets, Wade Napier, said the update was a little disappointing, as his team’s forecasts were at the very top end of Sasol’s guidance range for earnings growth.

Napier said possible reasons for Sasol’s performance could be higher costs associated with maintenance downtime at its SA operations in August, which were extended due to unplanned delays, or higher costs from the “go-slow” by Solidarity union members who are opposing the company’s exclusion of white workers from its new employee share-ownership scheme.

It may also be that Sasol could be making conservative Brent crude oil price forecasts over the remaining six weeks of the year, Napier said. The oil price has moved from $86 a barrel in early October to below $63 a barrel on Wednesday.

Davids agreed it may have been a slow start-up after maintenance that contributed to lower earnings. “Or Sasol’s base chemicals businesses could have seen lower demand and weaker pricing compared to expectations,” he said.

Sasol said it would issue a detailed production summary of the first half of its 2019 financial year on January 24.

“Sasol is expected to deliver a solid set of results, underpinned by higher Brent crude oil and product prices, a weaker average rand exchange rate, a satisfactory performance of its global assets and much lower remeasurement items during the six months ending December 31 2018,” the company said in Wednesday’s trading update.