Sasol Ltd (SOLJ.J)
A big year ahead – raising TP 20% to R520
11 January 2012 ¦ 31 pages
ir.citi.com
Cash is king — We think Sasol should prioritise cash returns in 2012. An already
under-geared balance sheet should benefit from strong cash flow generation (2012e
FCF yield of 4.2%). We estimate that an 8.5% share buyback could enhance EPS by
7% and ROE by 5% in FY12e. Sasol’s capex is well funded and the use of some debt
financing for new projects would enhance shareholder returns. Projects under
consideration have long lead times, so we believe investors should now benefit from
past investments (Oryx, natural gas, Arya).
A year of big decisions and macro moves — With an underpin of a near “perfect
storm” in macro (high oil prices; weaker average ZAR/USD); 2012e will also be a year
of big decisions for Sasol - acquisitions (natural gas) and possible disposals (Iran), plus
the potential for cash returns to shareholders (buybacks) and a final investment
decision on the Uzbekistan GTL.
Positive earnings momentum — We increase our earnings to reflect changes to Citi
commodity prices (crude, natural gas, thermal coal and chemicals) for FY2012e to
FY2014e and adjust volumes (Secunda, shale gas), chemical prices and margins. As a
result, our underlying FY2012e to FY2014e EBIT increases 12% - 60%, while we raise
our TP 20% to ZAR520/sh (from ZAR435). Even at our revised earnings, upside at spot
commodity prices remains, with current ZAR Brent crude at ZAR920/bbl (U$113/bbl;
8.13) ahead of our ZAR868/bbl forecast for FY12e.
Buy rating maintained — A rather weak start (Secunda, Arya) to FY2012 is likely to
motivate a better underlying operating performance from Sasol for the remainder of the
year. We expect strong earnings growth and cash flow generation (ample to fund value
accretive projects) plus an attractive 4.6% dividend yield in FY2012e. Our new
ZAR520/sh target price implies an undemanding PE of 10x and EV/EBITDA of 6.5x at
our FY12e base case earnings. |
