About Sasol
Sasol Limited was formed in 1950 and has been at the heart of South Africa’s economy since. It is the largest corporate taxpayer in South Africa and employs 26 000 people - mostly South Africans.
They are an integrated energy and chemical company based in Sandton, South Africa, with a diversified portfolio that operates in 33 countries around the world.
Today, Sasol develops and commercialises technologies, including synthetic fuels technologies, and produces different liquid fuels, chemicals and electricity.
Simply put, this company plays an essential role in the South African economy, not only does it provide income for government, but it employs thousands of people. It is a company that we cannot afford to let fail, and this is why the Government Employees Pension Fund (GEPF) is the largest shareholder with 13.5% ownership.
Below are other major shareholders:
BlackRock is the world’s largest asset manager with $9.5 trillion of assets under management, and they have a 3.5% stake in Sasol
What’s your Point?
In March 2020, it was a life time opportunity to load up on Sasol. The share fell to a low of (+-R25) and has since recovered to R221 - 784% return.
A simple R10 000 investment in March 2020 would now be worth R88 400 today. (17 months later)
Social Media was abuzz around Sasol when it crashed, and a lot of people feared it was the end of the company. Pointing to their high debt, the pandemic, and lower oil prices that weren’t hedged as to why it would fail. The world was truly in panic mode; “It was the end of the world”, so the rhetoric went.
But those that took the time to research a little deeper realized who the main shareholders were, and saw they where big players, like Blackrock and GEPF. Oil also wasn’t/isn’t going anywhere for a long time, even as we transition to cleaner energies. The time lag between inception and execution are a few decades away. Coal is also one of the cheapest forms of energy for South Africa, so why not use it to aid economic growth, rather than trying to limit our potential by being sanctioned into cleaner energy usages. Albeit, we must grow alternative energy sectors too, to move away from future reliance.
The SA government would also never had let Sasol failed at the time, simply because it had/has pension fund money invested in the success of the company. It is a massive tax payer (income for government) and plays a crucial role in our economy. All these factors made it a no brainer to take the risk because the risk reward ratio was tilted more to the reward side, which we can now see - in hindsight.
The smart thing to do would have been to increase ownership, as the government and as an individual.
Let me point this out, this doesn’t mean the company (Sasol) can never fail, bad decisions can always lead to the death of any company.
Where To From Here?
Fortune Favors the Bold
Remember, are you a trader or an investor?
In my opinion, Sasol is in an uptrend and the recovery is well under way. I believe they will return an additional 50% to shareholders over the next 14 months. As the global economy starts to recover and open again, oil prices will stay elevated from increased demand, which should bode well for Sasol.
Learning from mistakes - Sasol has done exactly this, one of the reasons Sasol’s price tanked last year was because Sasol never hedged the oil price at that time, meaning as the oil price continued declining in price, Sasol’s revenue started drying up. This is why investors were concerned about their debt, they were worried about debt default (how would they (Sasol) pay their debt with declining income).
A key example of being short-sighted. Creditors wouldn’t have wanted Sasol to fail because then they would lose out on all that expected income. It’s the same concept as why banks would rather restructure our personal debt and make a plan to let us continue paying smaller amounts rather than letting us default. They (banks) still want to get something out of it. The same thing applied here to Sasol’s creditors, they weren’t going to call on that debt to be paid because then Sasol would be doomed - a restructure was inevitable.
As mentioned, Sasol has now learnt from their mistake, they now understand what Albert Einstein once said;
“The definition of insanity is doing the same thing over and over again and expecting different results.
Sasol has now hedged their oil price at $60 and hedged the Rand at R14.60. This brings more confidence to investors and allows them to predict income for 2022. It protects Sasol against any economic shocks down the line too because they have hedged the price, meaning they get that price regardless of where the price moves in the market. They are protected on the downside and enjoy the upside reward because their oil hedge is between ($60-$72)
They are guaranteed R880 for their oil.
So what are you saying, David? Should we buy the stock?
IMO - there is an opportunity to make some money here, but it does come with risk, just like anything in life. But, Purely based on technical analysis the stock is clearly in an uptrend and has a tailwind behind it. (The fundamentals should show this in time). I believe the eventuality of the company is success and this will result in a higher share price.
As long as Sasol stays above R160, then it will continue to push higher and make its way to the next resistance point at R320.
Currently, the stock is at R221.00. This means from its current level there is a 45% return on offer within the next 14 months. (Price target = R320)
Below is a screenshot of my analysis, which depicts Sasol moving in an uptrend.
Check out the full video below for a full detailed report.
Happy Women’s Day to all the ladies.
See you next week,
stay safe everyone :)
Disclaimer:
Please don’t misconstrue this as investment advice, this is my personal analysis, always seek out a professional financial adviser before making any investment decisions.