Podcast: Sasol crushed - Just One Lap

Simon Shares

The Sasol (JSE code: SOL) share price has collapsed this week for three key reasons.

Saudi Arabia has declared oil price war on Russia and sent Brent down to the low $30’s as they try and get Russia to agree to production cuts.
Sasol has not hedge the oil price. They usually hedge about a third pf production, but currently they only have ethane and ZAR hedges in place.
Massive debt burden of some R150billion, now some 3x more than their market cap. This is spooking the market worried about a potential rights issue at current levels.
I’d add that a right down on Lake Charles is surely a given and in time Sasolburg as well.

All in this is a total mess and coupled with poor management the market is not happy. I fully expect Sasol to survive, but in what form or price have no idea and I would NOT be buying.

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COVID-19 continues to create havoc with Italy shutting down the entire country of 60million people as deaths exceed 600 and confirmed cases over 10k. But that still means some 20k cases they do not as yet know about. (Watch: COVID-9, markets in trouble)

Recession is fast becoming a certainty as regions (and entire countries) shut down, people stop going to work or out at all so no spending and no production. A huge concern is the USA who are not testing very well as South Korea did and may have tens of thousands of cases they don’t know about.

South Africa has 13 confirmed cases and so far it is being handled very well. Identify the confirmed case and works backwards with who they contacted putting people into isolation. Testing is key as South Korea shows. But while we’re very good at this sort of thing (remember listeriosis) it can very quickly overwhelm a struggling medical establishment. Global there are simple not enough ICU beds and we’re likely far behind the global average.

Bottom line is that this is getting worse and will continue to do so for a while (no idea how long that while is). No surprise markets are panicking and extremely volatile and my view is they’ll go still lower.

Some quick good news; yellow and white maize levels in South Africa are looking very good which is good news for food inflation and producers, especially Astral Foods (JSE code: ARL).
Offer for Assore (JSE code: ASR) at R320 which may provide some opportunity. There are no dates yet and lots of T&Cs. But if I see some weakness to say around R255-R270 (15%-20% below offer price) I’ll pick some up for the R320 take out.
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