Sasol's mixed result

Sasol (JO: SOLJ ) released a trading statement for the six months ended December 2021 that it refers to as a "mixed set" of results. The share price didn't do terribly much in response to the SENS announcement that came out first thing in the morning, so the market may have been expecting something in line with this.

The good news is that the gross margin improved, helped along by higher oil prices and favourable refining margins and chemical prices. The negative element to the result sits in the operational challenges in South Africa, which Sasol highlighted in previous announcements. This is why the market wasn't anticipating a perfect result.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the period is expected to be between 66% and 76% higher than the prior period. This doesn't sound like a "mixed" result, but remember that the market already knew that the earnings would be much higher because it can be inferred from the commodity prices.

To put a number to it, EBITDA for the interim period will be between R30.9 billion and R32.7 billion. It's hard to believe that this is a company that some people thought would go bankrupt in 2020 when lockdowns hit and oil futures went negative i.e. people were technically being paid to take oil away.

Headline earnings per share (HEPS) will be between R14.25 and R16.17, down from R19.16 in the comparable period. This is a reminder that there are many accounting line items that sit between EBITDA and HEPS, not least of all related to fixed asset depreciation and write-downs as well as the cost of debt.

Sasol releases a "core HEPS" number which is higher. This adjusts for non-recurring items as well as earnings losses of significant capital projects. I'm no expert in this industry but that doesn't sound like an earnings number that I would focus on. Sasol doesn't have the greatest track record with capital projects.

With the share price trading at just over R340 per share, it is up nearly 30% this year and is almost 15x higher than it was in the worst of March 2020. Perhaps the most interesting statistic of all is that Sasol is down by less than 10% over the past 5 years. It's been a remarkable turnaround for the company.

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