Sasol share price rebounds on geopolitical tension ahead of 1H 2022 results

Sasol to report half-year results (1H 2022)

Sasol the global chemical and energy producer is set to report interim results for the six months ending 31 December 2021 on Monday the 21st of February 2022.

Trading statement for the six months ended 31 December 2021

Sasol, in its trading update for the interim period has guided gross margin improvements for the period, supported by improved cost efficiencies and capital expenditure, as well as higher prices for chemical and oil over the reporting period.

In terms of earnings Sasol has guided the following for the interim period:

• Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to have increased by between 66% and 76% from the prior year’s comparative period

• Earnings per share (EPS) to have declined by between 3% and 7%

• Headline EPS to have declined by between 16% and 26%

• Core headline EPS to have increased by between 181% and 191%

The Core HEPS figure is considered the most relevant earnings metric by Sasol. These figures adjust headline earnings with non-recurring items, earnings losses of significant capital projects, translation gains and losses, derivatives and hedging activities as well as share-based payments on implementation of Broad-Based Black Economic Empowerment (BBBEE) transactions.

Brent crude

Crude oil prices have continued to rise as geo-political tensions dovetail with limited output increases by the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC), as well as improving demand as the global economy recovers from the pandemic. Tensions between Russia and the Ukraine threaten further sanctions on Russia, a major producer of oil. This has prompted further gains In the underlying commodity’s pricing.

The risks to oil remain to the upside, although it should be noted that Sasol does partially hedge currency and oil volatility in an attempt to maintain consistency in earnings.

Sasol fundamental view

Sasol continues to trade at attractive multiples (historical Price to Earnings ratio of around 8x). The company has done well in recent times to restructure and in turn reduce net debt dramatically as well as improve cash flow. The outlook for chemical and oil prices remains robust which should support group earnings going forward. However longer term, fossil fuels (oil and coal) are moving out of favour as the world looks to cleaner, greener energy.

Broker ratings for Sasol

As of the 14^th of February 2022, Sasol carries a consensus rating of ‘buy’ from a total of 9 analysts surveyed by Refinitiv.

The long-term price target finds a mean value at 314.20, which does however suggest the share price at current levels to be trading at a premium to the suggested fair value.

Sasol - Technical View

The share price of Sasol looks to have ended its short-term correction from near term highs and overbought territory. The price has gapped higher (grey bar) after finding support around the 31600 level.

36250 is the near-term upside target from the bullish price reversal and momentum gap higher. Traders who are long might consider using a close below gap support at 32940 as a stop loss consideration for the trade.