Executive Summary

On 20 May 2025, Sasol held a Capital Markets Day, providing a comprehensive update on its corporate strategy, operational performance, emissions reduction roadmap, and financial framework. Some key highlights are:

·        Sasol anticipates adjusted EBITDA to rise from R60 billion to a range of R64–R71 billion by FY28.

·        Cost savings of R10–R15 billion (relative to inflation) are a major contributor to this EBITDA growth, which is targeted for achievement by FY28.

·        The company maintains its net debt ceiling target below US$3 billion, reflecting a disciplined financial approach.

·        Capital expenditure is set to be reduced by R15–R20 billion compared to previous guidance, underscoring Sasol’s focus on efficiency.

·        The Chemicals segment is targeting an EBITDA margin of at least 15% by FY28, with positive cash flow before financing costs projected for FY25. This will result from operational streamlining, the closure or exit of underperforming assets, and a shift from volume-driven to value-driven strategies.

·        For mining operations in South Africa, priorities include restoring Secunda production to 7.4 million tons per annum or higher and reducing the oil breakeven price to $50/bbl by FY28 (1H25: just below $60/bbl). Key initiatives include improving coal quality through destoning and X-ray sorting, implementing real-time coal quality testing, and delivering sustainable cost reductions of R8–R10 billion by FY28.

·        Sasol plans to introduce additional renewable energy into its operations, targeting R5 billion in electricity cost savings over five years.

·        Capital investment of R4–R7 billion is allocated for emissions reduction projects to achieve the targeted 30% reduction in greenhouse gases by 2030.

·        New business developments are underway, including E-Fuels, sustainable aviation fuels, and hydrogen initiatives.

·        The outlook anticipates continued short-term pressure on oil margins and a prolonged period of muted demand in the chemicals market.

·        At the end of May, Sasol and Transet settled a legal dispute which ended with Sasol set to receive an amount of R4.3 billion (Ex VAT) before 30 June 2025.

Analyst thesis

An attractive valuation with deep discounts surpasses the company's concerns. Sasol presents a compelling investment case driven by substantial valuation discounts and multiple catalysts for potential recovery. The company's deep valuation discounts are reflected in a probability-weighted intrinsic value upside of 136%, supported by attractive metrics across several dimensions: commodity price relationships (Graphs 8-9), a 79% discount to peer LyondellBasell (Graph 11), and a 53% discount to its own 5-year average P/E ratio (Graph 12). Even the most conservative analysts see a significant upside, with 5 out of 6 FactSet-covered analysts projecting target prices exceeding 35% upside from current levels.

Various catalysts that should drive a recovery in its valuation.
1) A rebound in chemical industry margins is anticipated to significantly boost profits. However, this recovery may take a couple of years, as supply must first decrease through substantial plant closures to restore balance with demand.

2) Lowering debt levels will help reduce financial risk and uncertainty, improving the company’s overall financial stability.

3) Clearer regulations, such as those surrounding the carbon tax, are expected to eliminate uncertainties related to profitability and provide a defined pathway for reducing carbon emissions.

4) An increase in the rand oil price could support valuation gains, although the correlation between Sasol’s share price and oil price has weakened recently (see Graph 8).

5) Capital returns may occur through asset disposals at current low valuation multiples or potentially through an acquisition of Sasol at a premium to its share price.