Business
Sasol’s Struggles Deepen as Earnings Plunge and Investment Risks Rise
Sasol, one of South Africa’s largest energy and chemical companies, is facing mounting financial pressure. According to David Shapiro from Sasfin Securities, Sasol’s biggest problem is its failure to reinvest in its productive assets, leading to impairments and declining earnings.
“If you don’t reinvest in your productive assets, like your plants, you will eventually need to write them off. This is what we are seeing,” Shapiro explained.
Sasol’s latest financial update for the six months ending 31 December 2024 paints a bleak picture:
- Adjusted EBITDA is expected to drop between 11% and 22%.
- Earnings per share (EPS) are forecasted to fall between 47% and 61%.
- Headline earnings per share (HEPS) could decline by 26% to 36%.
Why Is Sasol Struggling?
Several factors have contributed to Sasol’s worsening financial position:
- Falling Oil and Fuel Prices – A lower average rand per barrel of Brent Crude Oil has cut into profits.
- Declining Refining Margins – Reduced margins have affected Sasol’s ability to generate strong revenue.
- Lower Sales Volumes – A 5% drop in sales due to lower production and weaker market demand has hit earnings.
- Asset Impairments – The company reported a net loss of R6.2 billion from remeasurement items, particularly affecting its Secunda and Sasolburg refineries.
Investor Concerns: Is There a Turnaround Story?
Sasol’s share price has dropped by 45% over the past year, raising questions about whether the company presents a buying opportunity or a high-risk investment.
Chantal Marx from FNB Wealth and Investments remains skeptical. “Sasol’s valuation is very low because the risk associated with the company is very high,” she told Business Day TV.
She warned that Sasol’s challenges extend beyond just earnings, pointing to:
- Gas supply issues
- Deteriorating coal mines
- Volatile oil and chemical prices
“Every market update from Sasol has something new for investors to be concerned about. It is chaotic,” Marx said.
What’s Next for Sasol?
While some may see a long-term opportunity in Sasol’s low share price, the risks remain high. The company needs significant reinvestment to stabilize its operations and restore investor confidence.
For now, analysts remain cautious, and the question remains: Can Sasol turn things around before it’s too late?
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