Morningstar | Sasol Provides Production Update; Stock Still Looks Overvalued
No-moat Sasol provided an update on its fiscal 2019 production metrics and saw an increase in liquids production, compared with two consecutive years of declining production. For the three months ended Sept. 30, 2018, Sasol produced 400 million barrels of oil equivalents, compared with 371 mmboe/d in the year-ago period. However, declines continued with the company’s natural gas production, down 2% to 34.2 billion cubic feet compared with the period ended Sept. 30, 2017. Sasol also reported continued refined products declines to 6.8 mmboe/d from 7.7 mmboe/d in the year-ago period.The company remains on track to meet our forecasts, and we are maintaining our $30 (ZAR 424) fair value estimate. The stock is down 5% on the reported production metrics and is now trading near $35 (ZAR 495). Despite the pullback, shares continue to look overvalued. While Sasol has an extensive near-term growth portfolio and favorable cost structure, we believe the market is overlooking rising costs driven by inflation while giving the company too much credit for the growth portfolio. 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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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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