Giulietta TaleviFor a moment there, Sasol had shaken off its market blues. Starting the year at R83.27, its shares barrelled more than 22% higher to R102 last Friday, partly on comments made by CEO Simon Baloyi that the group could list or merge its US Lake Charles chemicals facility sometime in the future. Not to mention a growing perception that the stock was just too cheap.
Reality, though, appears to have sucked its shares back down again. On Thursday, Sasol’s stock slid for the fourth straight day, dropping 4.7% to R87.24, following an announcement on its operational performance for the six months through December, the first half of its 2025 financial year.
Stones in the coal at its key Secunda plant, civil unrest in Mozambique, persistently tough international chemicals prices and a fire at the Natref refinery have all contributed to a tough operating environment.
“Unfortunately, the production update was lacklustre,” says Urquhart Partners founder Richard Cheesman. “This has also been against a backdrop of somewhat volatile commodity and currency prices, which significantly impacts the group’s profitability.”
To address some of these operational issues, the company has now taken a final decision to remove the stones from the coal, which should pay off in the first half of its 2026 financial year, earlier than Sasol had previously communicated, it said in the update.
However, while Sasol kept production guidance unchanged for its mining and gas divisions, the group lowered the annual volume outlook for Secunda and Natref, with sales volumes from Secunda now forecast at 6.8Mt-7Mt from the previously estimated 7Mt-7.2Mt.
Despite these setbacks, management maintains that it remains “committed to executing key self-help initiatives aimed at improving performance”.
Splitting the business
The one notable step Sasol has taken is separating its international chemical business from its South African operations, which could potentially unlock value for shareholders. But questions remain about whether this amounts to a meaningful change or merely tweaks around the edges of Sasol’s deeper structural challenges.
Baloyi discussed plans to potentially list or merge the sprawling Lake Charles complex in an interview with Bloomberg.
Sasol’s challenges are many, and big. These include whether there’s any place for its fuel-from-coal business in a green energy world and how it will fulfil its promise to cut carbon emissions by 2030, whether chemicals prices will recover meaningfully, and how the group – once again – will tackle its suffocating $4.1bn debt pile (beyond cutting the dividend, which it did in the past financial year).
If you’d bought Sasol shares at the end of 2024, you would’ve been up 22.7% by this year’s peak on January 17. Analysts still heavily tout it as a “buy”, primarily because the stock has tumbled so dramatically in recent years, down nearly three-quarters over three years (71.50%).
On average, the nine analysts covering the stock believe there is a 77% upside to its current share price, expecting it to hit R162.78 within a year. At present Sasol trades on a p:e of seven and a forward p:e of just 2.7 times earnings.
Clearly, sentiment towards Sasol, says Cheesman, is “poor”.
“Separating the two parts of the group would remove any discount relating to the sustainability of Sasol’s South African operations, which may also be weighing on the international chemical business’s valuation,” he says. “Embarking on some form of corporate activity here could unlock significant value for the group’s shareholders.”
The caveat is whether Sasol’s heavy debt load could scupper its plans, Cheesman adds. “And it is not clear how long it would take before a transaction could be consummated.”
Sasol’s dual personalities
Sasol has a habit of polarising the market. Some see it as a cyclical commodity play, like Kumba Iron Ore or Impala Platinum, whose shares once hit extreme lows when iron ore and palladium prices plummeted. Others view its challenges as existential.
It’s a bit of both, says Ashburton’s Garth Barry.
“On the cyclical side, oil is the primary driver – and also the polymers they sell; a large component of that is priced indirectly off the oil price,” he explains. “On the longer-term existential side, the big topic is carbon tax; in South Africa that will be increasing significantly, and then on top of that their Mozambique gas reserves are running low and depleting over the next decade. So that limits what their production could be over the longer term.”
Ashburton holds Sasol in its portfolios, but Barry acknowledges that a view on whether the stock is a screaming buy, or a raging short, is tricky.
Sasol has a window over the next five years or more of profitability until carbon taxes become a much bigger issue, though it depends on oil and chemical prices, he says. And with Sasol’s debt, investors must weigh whether it can generate enough to cover its obligations.
“Putting a value is quite tough at the moment, but if it hadn’t been for the balance sheet, then it would be much easier,” Barry adds.
The most recent report on Sasol from Standard Bank’s SBG Securities – from August 2024 – highlighted that the company’s decision to skip a dividend in the 2024 financial year was “prudent”, and that a “further pass” for fiscal 2025 is needed.
Sasol still has some positive momentum, the brokerage pointed out. Management has secured external coal supply until 2030, providing stability and buying time to address challenges at its mining operations.
It’s also extended profitable gas supply agreements, ensuring continued revenue as Mozambique’s gas reserves gradually deplete. This extension supports Sasol’s transition to liquefied natural gas, a cleaner alternative to coal that aligns better with global energy transition trends.
While SBG cut its price target on Sasol – to R450 a share – that’s still multiples of where it trades now.
But, says Barry: “You don’t need too much to come right on the oil and chemicals front for it to be in better shape than where it is now.”
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