As the sun sets on the current market dynamics, SASOL Limited (JSE: SOL) emerges as a compelling entity in the investor’s gaze. SASOL Limited, a leading integrated energy and chemical company in Africa, faces a complex scenario amidst market turbulence.
Despite a challenging year-to-date share performance, which has seen the share decline over 25% and on course for a third consecutive month of declines, SASOL retains the allure of historical gains and a strategic position within the energy sector. The recent downtrend and fundamental shifts in the company prompt an in-depth analysis that delves into both technical and fundamental aspects.
Technical Analysis
The daily chart shows that trading within a descending channel pattern, the share price has witnessed a month-to-date decline of 15.83% and a year-to-date fall of 25.39%. The bearish sentiment is underscored by the downward-sloping 50-SMA (blue line), which recently breached the 100-SMA (orange line). Currently, the price action comfortably resides below the 50-SMA (blue line), 100-SMA (orange line), and 200-SMA (red line), signifying a prevailing downward trend.
The Relative Strength Index (RSI), standing at 22.98, indicates an oversold condition. The falling RSI-based Moving Average (MA) further accentuates the bearish momentum. Short-term trading opportunities may emerge if the downward trajectory continues, with initial support at R186.08. A decisive break below may lead to a test of the R176.21 support level.
Conversely, a failure to sustain this bearish momentum might offer short-term trading opportunities towards the R210.43 resistance, with potential upside targets at R221.74 and R230.88.
The current price of R194.02 offers a potential for a 29.78% upside as the share converges towards its discounted cash flow estimated fair value of R251.80 (green line).
Fundamental Analysis
Sasol Limited has encountered a tumultuous year-to-date performance, displaying a decline of -25.39%. This stark downturn contrasts with the broader market indices, with the JSE Top 40 Index registering a return of 3.22%. The decline in share price could be attributed to the pressure that the company and overall industry have been faced with, including weak global economic growth, lower oil prices, and rising costs.
Beyond the technical intricacies, SASOL’s fundamental landscape unveils a multifaceted narrative. Despite the year-to-date drop of 25.39% in share price, the company boasts an over 55% share appreciation and a total return of 73.67% for shareholders over the past three years.
The earnings per share (EPS) trajectory also aligns with the company’s profitability over the last three years. SASOL’s Total Shareholder Return (TSR) of 73.67% in the last three years, outpacing the market, is bolstered by its dividend payments, presenting a more comprehensive measure of shareholder value.
SASOL’s stock is currently trading at a discount to its peers. The company’s price-to-earnings ratio (P/E) is lower than the average P/E for the energy and chemicals sector. This suggests that SASOL is undervalued and could be a good long-term investment.
In recent months, SASOL has announced a number of positive developments. The company has signed a number of new deals to expand its chemicals business. SASOL has also made progress on its emission reduction roadmap, which aims to reduce the company’s greenhouse gas emissions by 30% by 2030.
SASOL’s foray into renewable energy, evidenced by a solar farm venture in South Africa, positions it strategically amidst the global energy transition. Collaborations on hydrogen fuel cell electric vehicles and the introduction of sustainable products underline the company’s commitment to environmental responsibility.
However, SASOL is not without its challenges. A shareholder revolt over transition goals and concerns about the speed of innovation signals a pivotal moment. The recent fatalities and the impact of global economic volatility on the Q1 FY24 performance add nuances to the overall picture. The energy and chemical sectors’ volatility, coupled with challenges faced by state-owned enterprises in South Africa, contribute to SASOL’s complex operating environment.
Summary
Sasol Limited’s recent market performance presents a blend of challenges and opportunities. Despite the recent negative trend, the company’s long-term prospects, including its strategic initiatives in renewable energy and sustainable practices, suggest a potential turnaround.
As investors ponder their positions, Sasol’s commitment to innovation amidst a volatile market environment beckons a closer watch, potentially positioning the stock as an intriguing option for astute investors eyeing a potential reversal.
The R210.43 resistance level could act as a level of significant should a reversal materialize, while the R186.08 and R176.21 support levels could offer opportunities to buy the dip.
Sources: TradingView, MoneyWeb, MarketWatch, Reuters, KoyFin, Sasol, Dow Jones Newswire, MT Newswire, CNBC.
Piece Written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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