After a rally that’s seen Sasol’s stock price double this year, analysts are becoming wary of the South African oil and chemicals company.
The stock has only two buy ratings left out of nine analyst assessments, following recent downgrades by Nedbank Group and Citigroup. That’s the lowest proportion since 2019, according to data compiled by Bloomberg.
The world’s biggest manufacturer of fuel and chemicals from coal, Sasol has benefitted from the rise in oil prices following the outbreak of the Iran war.
It’s soared 45% since the start of the conflict, making it the best-performing stock on the FTSE/JSE All Share Index this year.
Brent crude oil is up 36% since the start of the war, providing a windfall to Sasol as its own petroleum products are benchmarked to international prices.
But the company’s coal-heavy operations carry growing carbon liability as global regulation tightens, and the depletion of Mozambican gas feedstocks threatens the firm’s long-term viability.
Sasol’s “short-term rally is completely justified by immediate cash flow improvements and operating leverage, but the lack of institutional analyst ‘buys’ reflects a collective refusal to ignore the looming structural, environmental, and capital-allocation hurdles waiting on the horizon,” said Unum Capital analyst Lester Davids.
Nedbank analyst Thobela Bixa double-downgraded the stock to underweight earlier this month, citing limited upside despite still-volatile oil prices. Any further gains from elevated crude prices will be short-lived, he said.
“No one ever loses money from taking profits,” Bixa wrote.
Citigroup downgraded Sasol last month, saying that the market “risks over-capitalising” the value of Sasol’s Secunda operations, where it produces oil from coal. Sasol is increasingly pricing in a terminal decline for the facility as it aligns with 2035 emission plans, analyst Oliver Connor said.
Sasol’s gains have made it more expensive versus its own history. Its 12-month forward price-to-earnings ratio has climbed to 5.5, well above an average of 4.23 over the past five years. Still, it’s cheaper than European oil majors, trading at a 44% discount.
“The key question is whether the company can sustain the recovery through consistent operational delivery and continued balance-sheet improvement, rather than relying primarily on supportive commodity conditions,” said Bloomberg Intelligence analyst Salih Yilmaz.
BLOOMBERG
