Sasol | Lake Charles, delayed and over budget
Sasol (SOL) revised guidance for its Lake Charles Chemicals Project (LCCP) due to scope changes, low labour productivity and inclement weather. LCCP's capex has been increassed by between USD500-700m (c.5.5%) and production has been delayed by between 1-6 months. SOL epxects LCCP to report FY '19 EBITDA of negative USD165-195m, compared to the positive USD110-160m previously guided.Noteably, LCCP's post ramp up EBITDA guidance has remained unchanged (FY '22f: USD1.30bn). Accordingly, we believe SOL's share price reaction to LCCP's revised guidance appears punative. Current valuations represent an attractive entry point, in our view and we upgrade SOL to an OUTPERFORM recommendation.
Sasol is engaged in manufacturing and marketing of liquid fuels, gas and chemicals. Co. adds value to coal, oil and gas reserves, using these feedstocks to produce liquid fuels, fuel components and chemicals. Co. mines coal and refines imported crude oil and retails liquid fuel products in South Africa, and produces gas and condensate in Mozambique and oil in Gabon. Co. also supplies fuels to oil companies in South Africa and others in South Africa and sub-Saharan Africa. Co. maintains its chemical manufacturing and marketing operations worldwide. Co. divides its operations into three focused business clusters: South African Energy Cluster, International Energy Cluster and Chemical Cluster.
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