• Earnings higher…:  Sasol will report results for 1HFY21 on the 22nd of February.  The company guides that headline EPS will be in a range of R18.59-R19.78 (+>100%, YoY).  Large reversals of non-cash period end losses in FY20 will impact earnings positively and core earnings are set to decline by 5% to 25%.  We set our expectation at R19.15/share.
  • …but EBITDA lower:   EBITDA is set to decline by 0-10% and based on guided EBITDA we expect a truer reflection of earnings at R7.63/share.
  • Fuel prices:  Petrol and diesel prices were 25% and 29% lower than the same period in FY20 and profits in the Energy business should be weak.
  • Chemical prices:  Realised prices in Base Chemicals were flat and prices in Performance Chemicals declined by 6% but a weaker rand supported prices in rands. Lower feedstock costs and higher gross margins should support profits in Performance Chemicals.
  • Once off items:  Profits would have been impacted negatively by the hurricane related shutdowns in the US.  Following the impairments at the end of FY20 we expect that lower depreciation charges in Energy and Base Chemicals will support earnings.
  • Cash flow and balance sheet:  We expect negative free cash flow in 1H but the stronger rand and divestments from US assets should see net debt decline to less than R100mn.  We also note that the sale of the air separation units has not closed yet, and Sasol has also not received much of the US tax relief cash in 1H.  Based on guided EBITDA Sasol’s net debt:EBITDA ratio should be well below the 4x covenant ratio, however.  We do not believe the company needs (and will announce) a rights issue.
  • A year of two halves:  We expect a weak first half as the recovery in oil and chemical prices only started late in the half.  We will review our estimates for Sasol after the result, but current commodity prices suggest profits could be well above our estimates for the full year.
  • Share price: We will review the investment case after the results.  Our rating remains Overweight.