Morningstar | Sasol Expects Increased Lake Charles Project Costs; Stock Remains in 3-Star Territory. See Updated Analyst Note from 25 Feb 2019
No-moat Sasol’s Lake Charles Chemical Project continues to hit bumps in the road. The company announced that total costs are over budget and increased its cost estimates again from $11.3 billion to the range of $11.6 billion-$11.8 billion. The project is now 94% complete, and management still expects the project to be placed into service later this year.Sasol reported its first-half 2019 fiscal year results for six months ended Dec. 31, 2018, that were a mixed bag. The company’s liquid production averaged 769 million barrels of oil equivalents, up slightly from the prior-year period and ahead of our expectations. Natural gas production averaged 67.6 billion cubic feet, which was down slightly from the prior-year period and slightly below our expectations. Sasol also reported continued refined products declines to 14.8 mmboe/d from 15.8 mmboe/d in the first half of fiscal year 2018.
We intend to incorporate the company’s results in our model shortly, but at this time, we are changing our fair value estimate to $32 (ZAR 444) from $30 (ZAR 424) based on changes in foreign exchange rates. We are maintaining our no-moat rating.
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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