Sasol expects profit rebound on higher chemical prices and lower impairments

South African petrochemicals firm Sasol (SOLJ.J) anticipates a significant full-year profit rebound, projecting earnings per share of 7-12 rand for the year ended June 30, a sharp reversal from last year's 69.94 rand loss. This improvement is attributed to higher chemical prices, stricter cost controls, and notably lower asset impairments, which fell to 20.7 billion rand from 74.9 billion rand previously.

Analysis

Sasol (SOLJ.J) has signaled a significant financial turnaround, forecasting a swing to full-year profitability with an expected earnings per share between 7 and 12 rand, in stark contrast to the previous year's loss of 69.94 rand per share. This recovery is underpinned by a confluence of favorable external conditions and internal efficiencies, namely higher chemical prices and tighter cost controls. A critical component of the improved bottom line is a substantial reduction in asset impairments, which fell to 20.7 billion rand from 74.9 billion rand in the prior year. The previous year's impairments were heavily concentrated in its U.S. chemicals operations, suggesting a potential stabilization in that segment, while current writedowns are attributed to its South African liquid fuels operations, Mozambican gas assets, and Italian chemicals business. The company's trading update provides a strong positive outlook ahead of the full financial results scheduled for August 25.

Key Decisions for Investors

• Investors should reassess any bearish positions on Sasol, as the dramatic swing from a significant loss to a projected EPS of 7-12 rand indicates a substantial recovery in underlying fundamentals.
• The upcoming August 25 earnings release is a key catalyst; focus should be on the detailed breakdown of margin improvements from chemical prices and the specific impact of cost-saving measures to gauge the sustainability of this turnaround.
• While the sharp reduction in impairments is a major positive, it is prudent to monitor the macro environment for chemical prices, as this remains a primary external driver of Sasol's profitability.