ARTICLES

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about half of its business.

Sasol is a massive company with an annual turnover of R289,6bn in the year to 30^th June 2023. Its performance is a direct function of the oil price and the basket of chemicals it produces. It is a price taker and not a price maker. However, it is mostly very profitable, generating huge quantities of cash from the various businesses that it engages in.

As an investment, it is volatile and that volatility has resulted in it having a very low price:earnings ratio (P:E) and a very high dividend yield (DY) – which is obviously attractive to private investors. Right now it is trading on a P:E of 2,73 and a DY of 9,28% which compares with the JSE’s average P:E of 10, 46 and DY of 4,25%.

In its recent trading statement for the six months to 31^st December 2023, the company estimated that headline earnings per share (HEPS) would come in at between R17.90 and R22.20 which is considerably lower than the HEPS for 2022 of R30,90 – but still amounts to a solid profit.

The decline in profitability is due to the drop in oil and chemical prices worldwide. Sasol has clearly gone right out of fashion as an institutional investment. Fund managers have been off-loading the share steadily for the past 19 months and the share price has been in a downward trend as a result.

But this is a massive company which is very profitable. It is not going into liquidation – and therefore at some point its share price must turn and start to go up. The oil and petrochemicals prices will not fall forever.

As a private investor, you need to use your best endeavours to determine exactly when that moment will arrive. Consider the chart:

The chart shows Sasol’s cyclical high at R430.42 made on 6^th June 2022 – just 19 months ago. Since then, the share has off-loaded almost two-thirds of its value and closed last Friday at R146.55. It cannot fall indefinitely. At some point sentiment will turn and the share will again be perceived as “cheap” by the fund managers. When that happens, they will begin buying it again and the share price will rise giving you the opportunity to make a capital gain.

So, your problem, as a private investor, is to try to determine exactly when it reaches its lowest point. The danger, of course, is that the share will fall further after you have bought in. To counter that possibility, you need to have a strict stop-loss strategy that limits your loss to not more than 10% if you get it wrong – bearing in mind that, with a volatile share like Sasol, you could see your money triple or better if you get it right.

There are many methods for determining when a share has turned. They range from the conservative, like waiting for it to break up through its downward trendline, to using a 21-day simple moving average and waiting for an upside break. In general, the more conservative your approach, the later you will get into the new upward trend when it arrives, but the more secure you will be when you do.

On the chart above, the earliest signal will come when the share price breaks up through the 21-day simple moving average (red). The next signal, coming somewhat later, when it crosses the 65-day exponentially smoothed moving average (black) and then finally the most conservative will be when it crosses the 200-day moving average (blue) and the medium term downward trendline. As always in the share market, you will trade off profit for security.

But you should remember that at whatever moment you decide to take the plunge and buy the share, you will be doing a whole lot better than those institutional fund managers who filled their pockets with Sasol shares back in June 2022 at a price of R430 per share.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Exponential Growth

The  S&P 500 index is important because all the stock markets around the world tend to follow it. If the S&P is in a bull trend then London, Tokyo and the JSE will also be in a bull trend – and vice versa.

The S&P500 index began 68 years ago on 4 th March 1957 with an initial value of 43,73. It took nearly

The US Jobs Market

International investors who trade on Wall Street are generally negative about any good news from the economy because it tends to make the monetary policy committee (MPC) more hawkish and less likely to reduce interest rates. The opposite is also true. But there comes a point where bad news is so bad that investors begin to fear that the US economy is heading

Jackson Hole

Once a year in late August central bankers and academics congregate in Jackson Hole to discuss the state of the economy and consider the way forward. Traditionally, the Chair of the Federal Reserve Bank (“the Fed”) addresses the meeting and gives direction to its thinking on monetary policy in the US. This year, the comments of Jerome Powell resulted in the

Choppies

Choppies is a supermarket chain which operates in Botswana, Namibia and Zambia. It is listed both on the Johannesburg Stock Exchange (JSE) and on the Botswana Stock Exchange (BSE). Notably, the company has resisted the temptation to re-enter the highly competitive and cut-throat retail market in South Africa, having exited that market in 2020 due to sustained losses. Despite

Gold Resistance

All investments throughout the world can be ranked on a scale from high risk to low risk. As a general rule, in the world of investment, risk and return rise together. In other words, as the risks in an investment increase, so does the return necessary to attract investors.

At the one end of the scale there are very low risk investments

Sibanye takes off

We have been writing about Neal Froneman and Sibanye for years now. Beginning in 2013, Froneman assembled the Sibanye group over a period of 7 years, buying up mining operations both in South Africa and America at bargain prices. Initially he bought precious metals producers, but more recently he has been diversifying into base metals like zinc and lithium which

The 16 Year Bull Trend

Since the Second World War, the stock markets of the world, including the JSE, have always tended to follow the New York Stock Exchange (NYSE) - and the NYSE is best measured by the S&P500 index (S&P) of its 500 largest companies.

For this reason, we believe it is important for private investors to constantly

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately