Sasol posted excellent results – but it comes with a warning

Sasol released excellent results for its 2022 financial year, but analysts have warned that it is a cyclical stock which can experience tremendous volatility based on the oil price.

Sasol’s latest results revealed that it quadrupled earnings per share from R14.57 to R62.34 and declared its first dividend – R14.70 per share – in two years.

Sasol reported earnings before interest and tax (EBIT) of R61.4 billion, driven by higher oil prices, refining margins, and chemical prices.

Commenting on Sasol’s results, Wayne McCurrie from FNB Wealth and Investments said investors should be aware that the results are driven by the commodity cycle.

“The Sasol share price plummeted to R22 per share in March 2020, and the company now makes R69 earning per share,” he said.

McCurrie said the commodity cycle is wonderful on the upside, but investors should never forget that it is a cycle that will experience a downturn in future.

Sasfin Securities deputy chairman David Shapiro added that Sasol’s prospects depend on where the oil price goes.

He said if the oil price holds at current levels or increases, it makes Sasol a great investment.

“The oil price increased from very low levels in 2020 to around $100 per barrel. The operational gearing for these swings is enormous,” he said.

However, Shapiro warned that the oil price could fall as fast as it rose, which can have a material impact on Sasol.

McCurrie predicts an oil price between $70 and $80 per barrel, but other commentators said the pullback on the oil price might be temporary, and it can rise sharply again.

Although predictions are not an exact science, he said in the current environment, with rising interest rates and slowing economic growth he cannot see the oil price resuming a bull market.

“We should remember what happened in 2008 when forecasts predicted that the oil price would go to between $250 and $300 per barrel, but then plummeted to $20 per barrel,” he said.