Sasol Limited 24850cps (Outperform, target 32200cps, 30%)
- Sasol is an integrated chemical and energy company that produces oil and chemical products and distributes worldwide.
- Roughly half of the company’s turnover is derived from South Africa and the balance in order is from Europe, the US, and the rest of the world.
- The recent Q4 sales update showed relatively weak chemical prices, but the share correlates closer to the S&P500 energy sector and the USD Oil price, which has been in a steady uptrend since June 2023.
- Sasol has a June year-end and although earnings have been revised down over the past 6 months, the 2024 estimate has been more stable.
- Gearing levels are still elevated but is set to decrease going forward.
- Sasol’s full-year results is scheduled for 23 August 2023, we believe looking at the year ahead that earnings can recover further off a relatively low base.
- The market is looking for headline earnings of 5885cps for the year to end June 2024, which places it on a FPE of 4,2X, the peer group average is currently at 6.7X.
- Sasol further trades on an EV/EBITDA multiple of 2.5X relative to the peer group of 3.5X, DCF valuations are upwards of 50000cps, the discount to peers is just too wide and the share looks cheap from different valuation methodologies.
- The share price is attempting a technical break up from the current 24850cps levels, there is minor resistance at 26200cps and the next level is up to 32200cps some 30% higher.
- We believe the 32200cps level is achievable in the next year and view current levels as an opportunity to accumulate the share.
The graph depicts the price of Sasol the past 3 years.
(Source: Bloomberg)
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