Oil Prices, Currency Boost Sasol - Analyst Blog
13 March 2012 - 12:51AM
Zacks
Sasol Ltd. (SSL) announced strong results for
the six months ended December 31, 2011, aided by higher oil prices
and a favorable exchange rate, partially offset by lower overall
production volumes.
The South Africa-based petrochemicals group reported headline
earnings per share, excluding one-time items, of R23.34
(U.S.$2.87), up from R12.98 (U.S.$1.95) earned during the
corresponding period last year. Operating profit rose 70% to R20.5
billion.
Segmental Analysis
South African Energy Cluster: Within its South
African energy cluster, Sasol Mining's operating income increased
42% to R1.0 billion (after adjusting for the one-off Ixia Coal
transaction share-based payment expense), buoyed by increased
production volumes and higher U.S. dollar export coal prices. These
were further supported by favorable currency fluctuations.
Sasol Gas generated an operating profit of R1.5 billion, up
14.0% year-over-year. The positive comparison can be attributed to
higher gas prices and sales volumes, somewhat negated by adverse
foreign exchange movements on gas purchases and start-up costs
associated with a new compressor in Komatipoort, South Africa.
Sasol Synfuels' operating profit jumped 84% to R9.9 billion,
mainly reflecting higher average oil prices that more than made up
for lesser production volumes and cost escalation.
Sasol Oil reported an operating profit of R1.1 billion as
against R665 million in the prior-year period. The improvement
primarily resulted from exchange rate fluctuations and stronger
wholesale margins. To some extent, these factors were offset by
decreased sales volumes.
International Energy Cluster: Sasol Synfuels
International recorded an operating profit of R1.0 billion, up
significantly from R539 million earned during the previous
half-year period. The improvement was due to stronger performance
at the Oryx gas-to-liquids plant in Qatar and higher product
prices. These were partly negated by unfavorable currency
fluctuations.
Sasol Petroleum International's operating profit fell 64%
year-over-year to R121 million, mainly reflecting negative foreign
exchange translation effects from overseas operations as well as
depreciation of the company’s recently acquired Canadian assets. To
some extent, these factors were offset by higher energy prices and
increased production from Sasol’s Gabon and Canada operations.
Chemical Cluster: Sasol Polymers reported an operating profit of
R546 million, as against R574 million in the prior year comparable
period. The segment results were adversely affected by decreased
domestic output and the margin pressure in international polymer
industry, partially offset by better volumes from international
operations and foreign exchange translation differences.
Sasol Solvents' operating income was up 153% from the previous
year's level to R1.1 billion, driven by stronger product prices and
the weakness of the rand against the US dollar, whose effects were
partly mitigated by and lower production volumes.
Sasol Olefins & Surfactants reported an operating profit of
R1.7 billion, a reasonable improvement over the income of R1.6
billion during the corresponding period of 2010. The positive
comparison came on the back of improved margins and foreign
exchange impacts.
Operating Cash Flow & Capex
Sasol generated R22.7 billion in operating cash flows, a 50%
year-over-year increase, primarily due to higher operating income,
somewhat nullified by higher working capital. The world's largest
producer of motor fuels from coal spent R14.5 billion in capital
expenditures during the period.
Dividend
The company announced an 84% hike in interim dividend to R5.70
per share. The dividend will be paid on April 16 to shareholders of
record as on April 13, 2012. The holders of American Depositary
Receipts (“ADRs”) will be paid on April 24, 2012.
Outlook
Looking ahead, the Johannesburg-based entity’s management
remains confident about its earnings outlook for the remainder of
2012. Sasol said that problems in the Middle East should lead to
persistently higher energy prices that will boost the company’s
profitability. However, the Rand/U.S. dollar exchange rate remains
the single most important factor in shaping Sasol’s results.
The petrochemicals group repeated that in view of the recent
restrictions/sanctions against Iran – on which Sasol is heavily
dependent for oil imports – it is looking to diversify its crude
sourcing. During the earnings release, Sasol also reiterated its
continuing focus on cost containment and capital project
execution.
Rating & Recommendation
Sasol – that has recently signed two transactions with Canadian
energy explorer Talisman Energy Inc (TLM) to enter
the North American shale gas market – currently retains a Zacks #2
Rank, which translates into a short-term Buy rating. However, for
the longer-term, we are maintaining our Neutral recommendation on
the ADR.
SASOL LTD -ADR (SSL): Free Stock Analysis Report
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