Sasol Gains from Rising Oil Prices
Sasol reported encouraging results for the year ending June 2026, with its share price currently just below its recent 12-month peak, nearly double its value from January.
These results and the rise in share price will certainly please shareholders, while the reported recovery in operations across most of Sasol’s energy and chemical sectors offers renewed optimism for the future.
Read: Oil surge turns into a bonanza for Sasol
It’s clear that the significant rise in oil prices was the primary driver behind the enhanced profitability and the increase in share price.
At the start of January 2026, Sasol’s stock was trading just above R100 on the JSE, with oil priced around $60 per barrel.
Oil prices skyrocketed to over $100 a few months later, leading Sasol’s share price to climb to R230. When oil retreated to the current $92 per barrel, Sasol’s price adjusted to R192.
The rand influenced the share price only minimally during this period, weakening from R15.95 to R16.15 against the dollar.
Notable Improvements
Nevertheless, the operational advancements are a welcome sign.
Management stated that Sasol finished the financial year with strong operational and earnings momentum, reporting a 17% rise in adjusted earnings before interest, tax, depreciation, and amortization (adjusted Ebitda) to R61 billion.
CEO Simon Baloyi mentioned in a presentation to stakeholders that this growth was driven by various factors beyond just the oil price.
“Sales volumes rose by 4% as production levels improved. The Secunda synfuel operations achieved their highest annual production in five years, surpassing market expectations. This was aided by better coal quality after the success of the destoning plant and enhanced overall equipment availability,” Baloyi explains.
Read: Sasol’s new destoning plant enhances coal quality
This progress is crucial as the Secunda operations form the core of Sasol’s integrated energy and chemicals enterprise.
Improved production, combined with favorable market conditions in the final quarter, led to a decreased oil break-even price.
The international chemicals division also exhibited signs of recovery.
Sasol Chemicals’ reset strategy continued to enhance the portfolio’s competitiveness, helping to mitigate tough conditions experienced for most of the year, which included lower US ethylene margins and weak market demand.
However, strengthening markets throughout the fourth quarter made a substantial impact, with International Chemicals seeing adjusted Ebitda increase by 47% in dollar terms compared to the previous year.
Another positive development is that Sasol successfully kept its cash fixed costs at R70 billion for the third consecutive year. Inflationary impacts were offset by ongoing cost-reduction initiatives.
While basic earnings per share soared by nearly 80% to R18.99, headline earnings per share only rose by 9%.
Cash Flow
Cash generated from operating activities grew by 22% to R56.7 billion. However, free cash flow declined by 5% to R11.9 billion.
This indicates that while Sasol produced more cash from operations, a greater demand for working capital consumed much of the increase.
Working capital rose due to higher prices in the final quarter and increased fuel volumes at the end of the year, necessitating larger stock levels.
Baloyi states that these additional fuel volumes will facilitate planned shutdowns at the beginning of the 2027 financial year.
Capital expenditure also offered some relief, with spending down 18% to around R21 billion, largely because major feedstock gas and environmental compliance projects were completed, and there was no maintenance shutdown at the Secunda facility in the past financial year.
Debt
Debt continues to be a significant concern for investors, showing minimal improvement over the past financial year.
The balance sheet indicates that long-term debt decreased from R88.6 billion a year ago to just below R67.9 billion at the end of the 2026 financial year.
However, additional notes to the financial statements reveal that the primary cause of this reduction was the relocation of R24 billion to short-term debt, which represents the segment of long-term debt due in the new financial year.
Total debt saw a lesser decline, dropping from R103.3 billion to R93.9 billion.
The elevated debt levels continue to delay shareholder dividends.
Sasol’s dividend policy allows for the distribution of 30% of free cash flow, but only when net debt, excluding leases, sustainably falls below $3 billion. As of the end of June, this figure stood at $3.3 billion.
Baloyi states that management’s actions, coupled with a more supportive macroeconomic landscape during the final quarter, led to strong cash generation and further balance sheet enhancement.
“We achieved our 2026 net-debt target of below US$3.7 billion, reducing net debt by 11% to $3.3 billion,” he explains.
Unfortunately, this is still above the $3 billion target needed to trigger dividend distribution. The board had no option but to announce once more that Sasol cannot declare a dividend.
The group has made strides toward its target, but an additional $300 million needs to be eliminated from net debt before the dividend policy can be reestablished on a sustainable basis.
Read:
Sasol’s 2026 results signify a substantial improvement, driven by higher oil prices, enhanced production, improved refining margins, and stringent cost controls.
However, it would be premature to conclude that its issues have been resolved. Sasol remains significantly burdened by high levels of debt.
The crucial concern is whether Sasol’s operational advancements can sustain profitability if oil prices return to ‘normal’ levels following a de-escalation of tensions in the Middle East.
View a PDF of the above results summary here.
Brought to you by Sasol.
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