EUR 850.00 For Business Accounts Only

Morningstar | No Material Changes to Sasol’s Fair Value Estimate; Stock Remains in 3-Star Territory

After taking a fresh look at Sasol’s first half fiscal year 2019 results, we are lowering our fair value estimate to $31 (ZAR 442) from $32 (CAD 444) based on movements in foreign exchange rates. Despite the slightly lower fair value estimate, Sasol remains in 3-star territory. Shares have declined nearly 25% since August and are now trading near our fair value estimate. While Sasol has an extensive near-term growth portfolio and favorable cost structure, we believe the market finally realized that rising costs driven by inflation will offset the company’s growth potential.  The company’s shift toward U.S. operations with its Lake Charles Chemical Project hasn’t gone smoothly, and the market has responded accordingly.

As a reminder, the company announced that total costs for LCCP 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.