Sasol Limited: A Potential Inflection Story

Company Overview - Sasol operates in three main segments: mining, energy, and chemicals, with FY 2023 adjusted EBITDA of R68.6 billion, where 7% is from mining, 56% from energy, and 37% from chemicals [2] - The chemical segment is the strategic focus going forward, significantly impacting future financials [2] Industry Context - The chemical sector faced severe margin compression post-Ukraine invasion, with declining prices and increased costs, particularly affecting European producers [2] - Sales revenues from European operations decreased by 23%, while African and American operations saw declines of 15% and 13%, respectively [2] Political Environment - Recent elections in South Africa resulted in the ANC losing its majority for the first time in 30 years, forming a coalition with the Democratic Alliance, which is perceived as pro-market [3] - The political shift has led to a positive market reaction, with the Johannesburg Stock Exchange rising 3.5% following the elections, and Sasol shares increasing over 15% in the same period [3] Strategic Outlook - Sasol is positioned at an inflection point due to the political climate and potential recovery in the chemical sector after a period of weak demand [5][10] - The company aims to reduce carbon emissions by 30% by 2030 and achieve net-zero by 2050, adapting to the green energy transition [12] Financial Performance - Sasol has a market capitalization of R87 billion and net debt of R73 billion, with expected free cash flow between R20 billion and R35 billion, indicating a high free cash flow to EV yield and a forward dividend yield around 9% [9] - The company has tangible assets valued at R193 billion, suggesting a significant undervaluation relative to replacement value, with a price-to-book ratio of 0.45 [9] Sector Recovery - The chemical sector is showing signs of recovery, with S&P Global forecasting gradual growth in 2024, and other industry leaders expressing cautious optimism about improving demand trends [11]