Analyst recommendation

                                                                                                           As at 10 February 2025

Executive Summary

On 24 February, Sasol released its 1H25 results, which were characterised by the following:
1. Turnover decreased by 10%, driven mainly by a 13% decrease in the average rand per barrel Brent crude oil price and
a 5% decrease in sales volumes.
2. Sales volumes were lower mainly due to ongoing coal quality challenges, 1Q25 startup delays at Natref and a fire
experienced in March 2024 at the East Cracker in the US which resulted in an outage until November 2024.
3. Expenses were well managed with the cash fixed cost decreasing by 1% to R35.2 billion.
4. Earnings per share (EPS) decreased by 52% to R7.22 due to the above while other items such as impairments and
unrealised gains/losses on derivatives further negatively impacted earnings per share.
5. The new dividend policy allows dividends to be paid on 30% of free cash flows provided that net debt (excluding
leases) is below $4 billion. Net debt (excluding leases) was $4.3 billion at the end of the period while free cash flows
were in a deficit due to first order capital of R14.8 billion being more than the cash available from operating activities
of R14.1 billion. This resulted in no interim dividend being paid.
6. Management lowered their guidance on most of its volume metrics for the year (table 2). Main reasons are the coal
quality challenges, and the East Cracker outage mentioned above combined with a fire that occurred at Natref after
the reporting period during January 2025.
7. Sasol will be having a capital markets day during May 2025 where more details are expected on its future strategies
and further information on any potential IPOs or partnerships.
With no changes in our outlook and thesis we maintain our intrinsic value at R192 and therefore also our
recommendation at a buy.

Analyst thesis

1. Attractive valuations with deep discounts outweighs the concerns.
   This being reflected in our probability weighted intrinsic value upside of 136% and its discounts relative to commodity
   price relationships (graph 8 and 9), peer multiples where it is trading at a 82% discount to peer LyondellBasel (graph
   11) and its own historic price to earnings ratio (graph 12) trading at a discount of 60% to its five-year average price to
   earnings ratio. It seems even the analyst with the most negative view sees value as all six analysts on FactSet having
   target prices with greater than 35% upside.
   • Various catalysts that should drive a recovery in its valuation.
   1) Recovery in chemical industry margins will lead to significant increase in profits although it might take a couple of
   years as supply first needs to decline through significant closures to rebalance with demand.
   2) Reduction in debt to reduce financial risk uncertainty.
   3) Clarification in regulations such as carbon tax should remove uncertainty around profitability and its path to
   reducing carbon emissions.
   4) Increase in the rand oil price, although only to an extent as Sasol’s share price relationship to the oil price has
   disconnected (graph 8).
   5) Return of capital to shareholders through asset disposals at these low share price valuation multiples or Sasol being
   acquired at a share price premium.

Results

Valuation

Table 3: Valuation

Table 3: Valuation multiples

Source: FactSet