Sasol share price rebounds from oversold levels after business update

Key Takeaways:

1. Sasol Limited has faced numerous challenges in the first half of fiscal year 2024, including weaker oil and petrochemical prices, unstable product demand, and inflationary pressure.
2. Despite these challenges, Sasol's Energy Business has shown resilience and improved performance compared to the previous year, primarily due to increased production and higher productivity.
3. The company's mining operations have implemented a full potential program aimed at achieving sustainable productivity improvements, but productivity reduction was observed in the second quarter due to safety incidents and unplanned engineering downtime.
4. Sasol's drilling program in Mozambique is progressing well and aligns with their commitment to safety. The approval of the FY24 maximum gas price by NERSA is a positive development for the company's future prospects.
5. The Chemicals Business continues to face challenging conditions, with macroeconomic weaknesses and customer destocking dampening global demand. However, Sasol managed to increase total chemical sales volumes in H1 FY24 due to improved performance in American markets and supply chain enhancements in Africa.
6. Pricing and demand volatility is expected to continue, with uncertainties in the petrochemical markets and local challenges in South Africa causing disruptions for Sasol's suppliers and customers

Sasol Limited (NYSE: SSL, JSE:SOL) has navigated through a challenging first half of fiscal year 2024. The global macro-economic environment has posed various obstacles, with factors such as weaker oil and petrochemical prices, unstable product demand, and inflationary pressure affecting businesses worldwide.

Sasol's Energy Business has demonstrated resilience, showing an improved performance in H1 FY24 compared to the previous year. This has been primarily due to increased production and higher productivity following the implementation of operational mitigation plans. Despite the improvements, factors like the rand oil price and inflation continue to exert pressure on the liquid fuels segment.

The company's mining operations, specifically at the Shondoni and Thubelisha collieries, have embarked on a roll-out of a full potential program aimed at achieving sustainable productivity improvements. However, a reduction in productivity was observed in the second quarter of FY24, attributed to safety incidents and unplanned engineering downtime. For investors, keeping an eye on the company's ability to maintain its coal stockpile above the minimum safety threshold is critical, as this ensures consistency in coal blending and supply, which is a vital aspect of Sasol's value chain.

In Mozambique, Sasol's drilling program is progressing well and aligns with their commitment to safety. The approval of the FY24 maximum gas price by the National Energy Regulator of South Africa (NERSA) is a noteworthy development for the company's future prospects.

The Chemicals Business, however, continues to confront challenging conditions. Macroeconomic weaknesses, particularly in China and Europe, along with customer destocking, have dampened global demand. Despite a 24% lower average sales basket price in H1 FY24 compared to the same period the previous year, Sasol managed to increase total chemical sales volumes by 4% due to improved performance in the American markets and supply chain enhancements in Africa.

Looking ahead, pricing and demand volatility is forecast to continue throughout the second half of FY24. The petrochemical markets are steeped in uncertainty, with a muted demand and margin outlook. Additionally, local challenges in South Africa, such as those presented by Eskom and Transnet, have caused disruptions for Sasol's suppliers and customers.

Broker ratings and price targets

As of the 25th of January 2024, a Refinitiv poll of analyst / broker ratings on Sasol suggests the share to be a buy at current levels. A mean of these analyst price targets suggests the stock price to have a longer-term fair value of R308.78.