- Lake Charles shutdown: Sasol’s Lake Charles facilities has been shut since late August as a result of Hurricane Laura. The company guides that reliable electricity supply is only expected in early to mid-October. Start-up of the producing facilities to stable production should take at least a week after electricity is restored.
- Production estimates lowered: We have lowered our estimates for production at the LCCP to reflect the shutdown. This includes the polymer facilities as well as the two crackers. Beneficial operation and ramp-up of the LDPE facility should also be slower than expected.
- Missing out on strong pricing: Prices in the US ethylene value chain have increased in the last month as a result of, amongst others, shutdowns at Lake Charles chemical facilities. Sasol will not benefit from these higher prices in September and potentially October.
- Product price fixes for September: Sasol’s fuel product prices for the month of September have been fixed and product prices for the first four months of FY21 are now known. The rand was weaker than anticipated, but the oil price and refining margins were below our expectations.
- Jet fuel and diesel remain weak: Commercial air traffic remain at around 60% of normal levels and jet fuel consumption remains well below normal. Lower jet fuel consumption keeps middle distillate inventories above normal and middle distillates crack spreads in general remain low. Diesel cracks have been negative in September. The outlook for diesel cracks remains particularly weak.
- Lower earnings: We have lowered our earnings expectations to reflect the Lake Charles shutdowns as well as the fuel product price fixes. Our FY21 headline earnings expectation is adjusted from R13.60/share to R10.75/share (-21%). We now expect EBITDA of $330mn at the LCCP in FY21. Spot earnings for Sasol in FY21 are at R6.00/share.
- Balance sheet: The balance sheet remains under pressure and assuming no further disposals or a rights issue we expect Net debt: Equity at 102% and Net debt: EBITDA at 4.5x in June 2021.
- Share price: There remains significant risk in the investment case and we maintain our cautious stance. The rating remains neutral.
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