Sasol Slumps as It Flags Profit Hit from South African Snarl-Ups
Sasol Ltd., the South African petrochemicals giant, slumped the most in more than two years after warning that its profit will be hit by delays in the completion of two major projects.
The Johannesburg-based company said on Tuesday that the delays will reduce its earnings before interest, taxes, depreciation and amortization by as much as $1.2 billion in the year ending June 30, 2024. The projects, which are both located in South Africa, are the Lake Charles Chemicals Project in Louisiana and the Secunda CTL Expansion in South Africa.
The news sent Sasol’s shares tumbling as much as 10.3%, the most since April 2019. The stock was down 8.2% at the close in Johannesburg, the biggest decline on the benchmark FTSE/JSE Africa All Share Index.
Project Delays
The Lake Charles Chemicals Project, which is a joint venture between Sasol and Chevron Corp., is a $11 billion project that is expected to produce ethylene, propylene and other chemicals. The project was originally scheduled to be completed in 2021, but Sasol said it now expects the project to be completed in the first half of 2024.
The Secunda CTL Expansion is a $3.5 billion project that is expected to produce diesel, jet fuel and other products. The project was originally scheduled to be completed in 2022, but Sasol said it now expects the project to be completed in the first half of 2025.
Impact on Profits
The delays in the completion of the two projects will have a significant impact on Sasol’s profits. The company said it expects its earnings before interest, taxes, depreciation and amortization to be reduced by as much as $1.2 billion in the year ending June 30, 2024.
The company also said it expects to incur additional costs of up to $400 million in the year ending June 30, 2024, due to the delays. The additional costs include the cost of additional financing, the cost of additional working capital and the cost of additional capital expenditure.
Shareholder Reaction
The news of the delays and the impact on profits has not been well received by shareholders. The company’s shares have fallen more than 10% since the announcement, and analysts have downgraded their ratings on the stock.
Analysts at Goldman Sachs Group Inc. downgraded their rating on the stock from “buy” to “neutral” and cut their price target from $50 to $45. Analysts at UBS Group AG also downgraded their rating on the stock from “buy” to “neutral” and cut their price target from $50 to $45.
Management Response
Sasol’s management has responded to the news by saying that the delays are due to a combination of factors, including the impact of the Covid-19 pandemic, delays in the supply of materials and equipment, and delays in the construction process.
The company said it is taking steps to mitigate the impact of the delays, including reducing costs, optimizing the project schedule and working with its partners to ensure the timely completion of the projects.
Outlook
Despite the delays and the impact on profits, Sasol’s management remains optimistic about the company’s long-term prospects. The company said it is confident that the projects will be completed on time and that the long-term benefits of the projects will outweigh the short-term costs.
The company also said it is continuing to focus on its core business and is making progress on its cost-reduction initiatives. The company said it is confident that it will be able to deliver long-term value to its shareholders.