• Higher and lower earnings:   We have adjusted our HEPS estimates to reflect the closing exchange rates and oil prices at FY20 balance sheet date.  We now expect earnings of R5.80/share in FY20 compared to a loss of R6.86/share previously.  Our FY21 estimates have been lowered from R23.20/share to R19.80/share.
  • Stronger rand and higher ethane:  The rand ended stronger than our expectations on the balance sheet date, reducing mark to market hedge losses in FY20 but also reducing gains in FY21.  Higher ethane prices also see lower losses in FY20 and smaller gains in FY21.
  • CARES Act windfall:  The CARES Act in the US provides relief following the outbreak of the Corona virus.  Companies are allowed to carry back operating losses incurred from 2018-2020.  There is also relief on interest expenses and tax credits against payroll.  Sasol could get tax refunds in excess of $160mn as a result.
  • Carbon tax:   The South African Government postponed the payment of carbon tax to October and although Sasol would have provided for the tax there should be a cash benefit at the end of FY20.
  • Large impairments looming:  If Sasol receives binding offers that are below book value for assets it could trigger large impairments.  We estimate an impairment at the LCCP could exceed $2bn.
  • More cash required:  At current oil and chemical prices, including recent disposals, we estimate that Sasol would need an additional $612mn in order to comply with debt covenants in December while around $1.6bn is required to comply with the June 2020 covenant.
  • More needed to secure the balance sheet:  Selling assets just to comply with covenants does not destress the balance sheet and the balance sheet will remain at risk.  Sasol has indicated that it needs to reduce its debt by $6bn in order to restore the balance sheet and asset disposals of an $3.6bn is required to achieve the target.
  • Share price: We value the Sasol share at R158/share, excluding the impacts of assets sales or a rights issue.  We remain a neutral rating.