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

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad

Karoo

In April 2018 – nearly seven years ago – we wrote an article about Cartrack. At the time we suggested that it was the ideal investment for private investors because it was a service company with debit order income and almost no working capital that was growing rapidly both locally and internationally.

Tweets

Over the Festive Season, we have been communicating with you via our tweets on “X”. The chart below shows the timing of our individual tweets and what subsequently happened to the S&P500 index.
 

Winners in 2024

2024 was always going to be a very good year for the share market. The year began with the S&P500 at 4742.83 (2/1/24) and it reached an all-time record high of 6090.27 (6/12/24) – a gain of 28,4% excluding dividends.

On the 25^th of January 2024 we made the following prediction on Twitter (X):