Sasol share price drops further as dividend cut and earnings fall

Key Takeaways:

1. Declining revenue and lower earnings before interest and tax (EBIT) indicate the challenging financial landscape faced by Sasol Limited during the six-month period ending December 31, 2023. This is mainly attributed to lower chemical product prices and the volatile macroeconomic climate impacting the energy and chemical sectors.
2. Weaker oil and petrochemical prices, unstable product demand, and inflationary pressures have significantly contributed to Sasol's financial outcomes. These factors highlight the difficulties faced by the company in maintaining profitability.
3. Operational improvements in South Africa have been overshadowed by the underperformance of state-owned enterprises, which are crucial to Sasol's operations. This further adds to the challenges faced by the company in achieving its desired financial performance.
4. The impairments recorded in Sasol's financial results, particularly the impairment of the Secunda liquid fuels refinery cash-generating unit (CGU) and the Chemicals Africa Chlor-Alkali & PVC and Polyethylene CGUs, reflect the anticipated deterioration of the macroeconomic environment, including Brent crude oil and electricity prices.
5. Despite the headwinds, there are potential areas for cost savings and margin improvements in lower chemical feedstock prices in Europe, Asia, and the United States. Additionally, the declaration of an interim dividend at 200 cents per share indicates that the company aims to provide some level of shareholder return amidst the challenging

The financial performance of Sasol Limited (NYSE: SSL) over the six-month period ending December 31, 2023, presented a challenging landscape.

With a revenue drop from R149.8 billion to R136.3 billion, mainly due to lower chemical product prices, traders are witnessing the effects of a volatile macroeconomic climate on the energy and chemical sectors. Earnings before interest and tax (EBIT) also saw a significant decrease, dropping 34% from the previous period to R15.9 billion.

The weaker oil and petrochemical prices, alongside unstable product demand and inflationary pressures, have been key contributors to the company's financial outcomes.

Operational improvements in South Africa have been overshadowed by the underperformance of state-owned enterprises that are integral to Sasol's operations. Furthermore, the global growth outlook continues to exert pressure on the company's business performance.

The impairments noted in Sasol's financial results are particularly telling. A R3.9 billion impairment of the Secunda liquid fuels refinery cash-generating unit (CGU) and a R1.2 billion impairment of the Chemicals Africa Chlor-Alkali & PVC and Polyethylene CGUs reflect the anticipated continued deterioration of the macroeconomic environment, including Brent crude oil and electricity prices.

Despite these headwinds, there are some silver linings. Lower chemical feedstock prices in Europe, Asia, and the United States offer potential areas for cost savings and margin improvements. Moreover, the interim dividend declared at 200 cents per share, while lower than the 700 cents per share from the previous period, indicates that the company maintains some level of shareholder return amidst challenging times.

Sasol – technical view

The share price of Sasol remains in a long-term downtrend, although in the near term the price continues to trade within a falling wedge pattern. The pattern suggests that a short-term rebound is possible.

In the event of a rebound from oversold territory as the pattern suggests, 15500 would become the initial upside resistance target from the move. However in lieu of the longer-term downtrend still firmly in place, traders might prefer to wait out strength before looking for short entry once again.

A close below the lower trend line of the wedge formation might suggest downside momentum is continuing and negate the prospect of short term rebound within the longer term down trend. In this scenario, historical support comes in at the 12100 mark to provide a further downside target. In this scenario, a close above a one or two day high could be used as a stop loss indication, depending on a trader’s threshold for risk.