JOHANNESBURG - SASOL led the gains on the JSE yesterday, helped by the strengthening of the oil price and a weaker rand against the US dollar.
Sasol in intraday trade leapt to a high of R203.89 a share – the highest in over a month, before closing the day at R196.73. Sasol's share price rally follows Friday's surprise trading update indicating a 200 percent jump in headline earnings a share for the half year ended December.
Oil prices neared one year highs on Wednesday after the Opec+ alliance of major producers maintained its supply cut agreement and the US stockpiles fell to their lowest levels since March.
Brent crude hit the highest level since February last year after rising by 1.74 percent to $58.46 (R873.57) a barrel on Wednesday, and was 0.22 percent higher yesterday at $58.98 a barrel.
Old Mutual Investment Group Head of Equities Research, Meryl Pick, said the recovery in the oil price was a tail wind that had come at the right time for Sasol. “If the oil price remains around these levels, there could be more upside to Sasol,” said Pick, adding that Opec's commitment to keeping the market tighter and prices at between $50 a barrel and $60 a barrel would make it possible for Sasol's products to be profitable.
In March last year Sasol announced plans to beef up its balance sheet through asset disposals and a potential rights issue of up to $2 billion.
As part of the asset sale process, Sasol sold its 50 percent interest in the Lake Charles Chemicals Project Base Chemicals Business last October.
Pick estimated that for Sasol to avoid a rights issue it needed a rand oil price of R750 per barrel and above, at the prevailing rand and oil price it was within that range.
“I believe that they would want to avoid a rights issue. Without a capex in the long term horizon, there is no urgent need to raise the capital.
“Now the sale of a large stake of Lake Charles in Louisiana, the capex for the project is behind them and they are going to do better in 2021 and 2022 and that is going to be the case with or without the oil price,” Pick said.
On Friday Sasol told the market it anticipated headline earnings a share would jump to between R18.59 and R19.78 in the six months ended December, compared to R5.94 in the prior half year on its commitment to capital and cost management.
Vestact portfolio manager, Michael Treherne, said Sasol had inched higher yesterday due to Opec saying they would keep production levels low until the surplus in storage worldwide had been wiped out.
“Sasol is a leveraged play to the oil price in dollars. It means that as the oil price goes up and the rand weakens, the company will make a lot more money,” Treherne said.