Sasol has nearly doubled in 12 months, but is it still cheap?

Sasol’s strategy of paying down debt and focusing on meeting operational targets has put it firmly on the buy list for many. Picture: Flickr The war in the Middle East has pushed Sasol’s share price up by more than 7% in the past week and 46% since the start of the year. The throttling of oil’s passage through the Strait of Hormuz – which accounts for a fifth of global seaborne oil trade – sent oil spiking above $110 a barrel on Monday from $82 at the start of the month as the war ramped up between Israel, the US and Iran.

Oil prices softened to around $90/bbl on Wednesday on news of some shipments resuming through the Strait of Hormuz. But it’s great news for Sasol shareholders who have seen a near doubling in share price over the last 12 months. The energy and chemicals producer’s business model is tailored for much lower oil prices, leaving its share price highly leveraged to any windfall gains in oil and chemicals prices such as we have seen in the past week.

Kea Nonyana, market analyst at PrimeXBT, says soaring oil prices since the start of March have fattened margins for oil producers such as Sasol, though hedging strategies to curtail oil price volatility reduces the full benefit of higher prices. “The current hedging strategy limits the full earnings benefit from the oil rally, capping the upside. The chemicals division, despite some momentum in global prices, faces challenges from potential feedstock shortages, which could raise costs and necessitate output cuts. “Therefore, Sasol’s stock performance remains heavily dependent on energy market dynamics rather than a broad chemicals and oil upturn.” Compared to September 2023 when oil prices were at similar levels, Sasol is pumping free cash flow due to lower debt, no dividend payouts and better operational efficiency.