• Earnings upgrades, not as large as they look:   We raise our HEPS estimate from R13.55/share to R30.20 to include the reversal of currency and hedge related losses.  We increase our core HEPS from R15.73 to R19.72.  Our estimate for HEPS for FY22 increases to R32.65.  The upgrade is mostly as a result of higher oil prices.  Spot earnings remain around 20% higher than our estimates.
  • Sasol Energy:  Prices were low, but revenues surprised on the upside.  The business benefited from inventory gains as oil acquired at lower prices were refined during the half.  These gains should not recur in 2H but higher product prices should drive profits in 2H.
  • Base Chemicals:  Revenues were supported by the weaker rand but price realisation in polymers and solvents were below the average benchmarks.  There is a lag and prices should be higher in 2H.  We expect lower prices in the longer run as fundamentals deteriorate.
  • Performance Chemicals:  Profits remain under pressure as key markets in the organics segment remain weak.  We expect higher prices in 2H as PKO, benzene and kerosene prices have increased.
  • LCCP:  Sasol guides that the EBITDA run rate at current prices is at $30mn/month.  Based on this guidance and other datapoints we expect EBITDA of $116mn for the full year ($155mn at spot prices).
  • Cost savings:  Sasol’s cost savings brought cash fixed costs down to R28bn in 1H (-6%).  Restructuring costs and the reintroduction of short-term incentives should however see higher costs in 2H.  Sasol guides that total cash fixed costs are targeted at less than R60bn for the year.
  • Depreciation:  All the business units benefitted from lower depreciation following the impairments at the end of FY20.  Depreciation should decline once more in 2H following the LCCP and Gemini disposals.
  • Balance sheet:  We expect Net debt: EBITDA at 1.9x at year end.  The balance sheet appears to be secured against minor price moves.  Sasol should plan for more volatility and dividends are unlikely for 18 months.
  • Rating: Based on the higher near-term profits we raise our target price for Sasol to R210/share.  We maintain an Outperform rating.