Sasol has nearly doubled in 12 months, but is it still cheap?

The war in the Middle East has pushed Sasol’s share price up by more than 7% in the past week and 46% since the start of the year.

The throttling of oil’s passage through the Strait of Hormuz – which accounts for a fifth of global seaborne oil trade – sent oil spiking above $110 a barrel on Monday from $82 at the start of the month as the war ramped up between Israel, the US and Iran.

Oil prices softened to around $90/bbl on Wednesday on news of some shipments resuming through the Strait of Hormuz.

ALSO READ: SA could be a big loser in Middle East conflict: Oil surges, stronger dollar hits rand

Bad news for SA inflation

This is bad news for South African inflation, which has been trending downwards over the last year, with some expecting pump prices to surge R8-R10 a litre in the coming weeks.

But it’s great news for Sasol shareholders who have seen a near doubling in share price over the last 12 months.

The energy and chemicals producer’s business model is tailored for much lower oil prices, leaving its share price highly leveraged to any windfall gains in oil and chemicals prices such as we have seen in the past week.

Kea Nonyana, market analyst at PrimeXBT, says soaring oil prices since the start of March have fattened margins for oil producers such as Sasol, though hedging strategies to curtail oil price volatility reduces the full benefit of higher prices.

“The current hedging strategy limits the full earnings benefit from the oil rally, capping the upside. The chemicals division, despite some momentum in global prices, faces challenges from potential feedstock shortages, which could raise costs and necessitate output cuts.

“Therefore, Sasol’s stock performance remains heavily dependent on energy market dynamics rather than a broad chemicals and oil upturn.”

Compared to September 2023 when oil prices were at similar levels, Sasol is pumping free cash flow due to lower debt, no dividend payouts and better operational efficiency.

Net debt is expected to drop to $3 billion soon, which further boosts its free cash flow.

Sasol’s advantage(s)

Sasol has an advantage over competitors in chemicals production due to cheaper feedstocks from coal and natural gas via its integrated Fischer-Tropsch process.

Others are more heavily dependent on crude oil, which gives Sasol a cost advantage when oil prices rise.

Chemicals account for roughly half its revenue and 15-20% of profits.

Announcing the results last month, Sasol CEO Simon Baloyi said the company continued to make progress in areas under its direct control – such as debt reduction and free cash flow generation.

The company also widened its hedging programme to compensate for forex volatility.

Sasol’s strategy of paying down debt and focusing on meeting operational targets has placed it firmly on the buy list for most analysts tracked by Moneyweb.

However, not everyone is bullish, with some seeing potential pullbacks in price should supply disruptions through the Strait of Hormuz ease, or there is a drop-off in global demand.

There is speculation that US President Donald Trump may declare victory in the war with Iran and walk away.

It’s not certain that Iran, which believes it is in an existential war for national survival, would see it that way – but should it happen and oil traffic return to some kind of normality, oil prices will soften and Sasol may give up some of its recent share price gains.

ALSO READ: Motsepe and other mining giants to benefit from the Middle East conflict

Who’s doing what with the share?

Earlier this month, UBS downgraded Sasol from buy to neutral, with Goldman Sachs taking a similar view in February, with an implied price target of R118.

Sasol blew through that target within the month, which will no doubt prompt an update from the major banks in light of recent events.

JP Morgan Chase reiterated its underweight rating in January.

Financials

Sasol reported flat revenue at R122.4 billion for the six months to December 2025, with a 52% drop to R4.6 billion in earnings before interest and tax.

This was largely due to R7.8 billion in impairments at the Secunda liquid fuels refinery cash generating unit and its Mozambican gas production sharing agreement following delays at the gas-to-power plant.

Headline earnings per share were 34% lower than the previous period. There was good news on the operational front, with Secunda reporting a 10% lift in output.

That, along with lower capex and fixed costs, helped push free cash flow into positive territory for the first time in four years.

The longer oil prices hold at these levels, the better the outlook for Sasol.

That said, a quick end to the conflict over Iran and Israel could see oil prices drop sharply, so brace yourself for volatility.