Near-Term Bullish on Sasol - Analyst Blog
14 April 2011 - 1:49AM
Zacks
Last week, ADRs of Sasol Ltd. (SSL) hit a
52-week high of $60.39. The South Africa-based petrochemicals group
has seen its share price climb approximately 50% since the end of
August last year, as investors have been buying the stock for its
attractive fundamentals and positive outlook. The turnaround in
fuel prices amid recent optimism about the economic recovery has
added to this bullishness.
Sasol, which has recently signed two transactions with Canadian
energy explorer Talisman Energy Inc (TLM) to enter
the North American shale gas market, has a Zacks #2 Rank (Buy
rating) in the short run.
The co-operation with Talisman is part of Sasol’s previously
laid out plans for a significant outlay in upstream shale gas
resources associated with its gas-to-liquids (“GTL’) projects in
North America, apart from unlocking additional value in the
world-class Montney shale play.
In recent times, Sasol – a pioneer in the area of synthetic
petroleum alternatives – has continuously focused on the
commercialization of its GTL technology by constructing plants in
gas-rich regions of the world that will strengthen its position in
the industry in the coming years.
The company, which constructed the world’s first
commercial-sized GTL plant in Qatar, plans to leverage the
opportunity to arbitrage between gas and oil prices. Under normal
circumstances, the ratio of the price of oil (measured in $ per
barrel) to the price of natural gas (in $ per million British
thermal units) fluctuates between 6 and 12. However, in recent
times, this has decoupled to an unprecedented degree, up at around
25.
With gas prices remaining at depressed levels and thereby
diverging significantly from high oil prices, Sasol is looking to
utilize the spread by using its GTL technology that is expected to
be more profitable than the company’s traditional business of
producing motor fuels from coal.
A robust balance sheet and strong cash position are other
positives in the Sasol story. As such, we believe the
Johannesburg-based entity is favorably positioned to continue to
accelerate revenue and earnings growth over the next few
quarters.
Incorporated in 1979, Sasol is an integrated energy and
chemicals company. It is the leading provider of liquid fuels in
South Africa and a major international producer of chemicals.
Sasol is fairly unique compared to other international oil
companies as it has limited conventional exploration and production
operations and uses a proprietary technology (Fischer-Tropsch) to
manufacture synthetic fuels (synfuels) and chemicals from low-grade
coal and natural gas. Sasol manufactures more than 200 fuel and
chemical products that are sold worldwide.
SASOL LTD -ADR (SSL): Free Stock Analysis Report
TALISMAN ENERGY (TLM): Free Stock Analysis Report
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