Sasol pounded after market update

Nicole Rego | Fri, 19 Jun 2009 11:54
[miningmx.com] --THE share price of petrochemicals firm Sasol took a beating on Friday morning, losing more than 4% after a trading update showed the group's headline earnings could halve.

Sasol warned its attributable earnings per share and headline earnings per share for the year to end-June 2009 could drop by between 40% and 50%, compared to the previous year.

"The trading statement has spooked the market, the decline in forecast earnings is probably worse than what the market expected, and the share has bucked the trend among resources," Ferdi Heyneke, a portfolio manager at Afrifocus Securities, told Reuters.

Global Trader's head of trading Nilan Morar said the expected earnings plunge is due to the lower oil price.

"It has come down quite a lot from its record highs of over $147 per barrel, and we have to believe that demand has waned quite a bit. When oil was up at $120 a barrel this time last year, the world was pumping," he said.

"At $70 a barrel, with everything kept equal as then, demand should have been twice as high - but it isn't. The world is in dire straits."

He said that since March 1 2009, markets have bounced back and it's easy to forget where the JSE was four months ago. "This trading statement is a reality of what happened last year," Morar said.

In addition, Sasol said the effects of non-cash charges relating to the Sasol Inzalo empowerment transaction and the administrative penalties paid to competition authorities in SA and Europe also had an effect on its earnings.

By Friday 10:30, the share was trading at R284.56.

Morar said R280 is a big support level for the share. "It's back at levels of a month ago, but if it breaks below this level convincingly, we would be watching R250 as the next level."

When asked whether the share looked cheap, Morar said he was still "quite bearish" about the market.

"If you're looking at it as a long-term investment you could take a nibble, but not if you're in it for the short term. Too many people piled into Sasol when it looked cheap at R300.

"But since then it has moved to just above R280; they're wondering if there are more surprises out there, and I'm sure there are," said Morar.

Sasol's statement said its positive cash position and a strong balance will serve the group well in the current economic climate and fund its growth programme.

"Growth plans remain unchanged. We have reprioritised our planned capital expenditure to R16bn for 2009 in the light of the changed market conditions, including assessing the opportunities that the current environment presents," it said.

Sasol's financial results for the year will be announced on September 14.