- Large asset for sale: Sasol has indicated that it is far advanced in the sale of its 50% share in Rompco, the company that owns the pipeline that transports gas from Mozambique to Sasol’s site in Secunda.
- Key to feedstock delivery: Rompco transports almost 160MGJ of gas from its processing facility in Mozambique. The gas is used by Sasol for the production of fuels and chemicals as well as power generation. Gas is also sold to external customers.
- Valuable asset: Rompco is a highly profitable business and operating margins have varied between 64% and 79% in the last five years. The business is highly cash generative and increased its dividend payout ratio to more than 100% in recent years. Return on net assets are in FY19 was around 35%.
- Valuation: Sasol ultimately benefits from Rompco’ s dividends. Using a dividend discount model we value the whole of Rompco at R13.8bn and Sasol’s share at R7.9bn. We assume a useful life of the pipeline until Sasol’s gas reserves in Mozambique are depleted.
- Who can buy it? We believe both the Central Energy Fund (iGas) and CMG (Mozambique) have pre-emptive rights to acquire the assets in the case of a sale. The Central Energy Fund has more than R12bn of available cash on its balance sheet to fund such an acquisition.
- Creating a dependency: Sasol’s strategy in the past has been to control its feedstocks and feedstock supply chain. The sale of the pipeline would require that Sasol has watertight offtake agreements in place to ensure stable gas supply to its sites in future.
- Strategically weaker: The sale Sasol’s share in Rompco might be a quick win in Sasol’s efforts to strengthen its balance sheet but could weaken the company strategically as it loses control over the supply chain of a major feedstock into all of its South African operations.
- Share price: We value Sasol at R158/share and maintain a neutral rating.
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