Renewable Energy And Low-Carbon Investments Will Capture Secular Global Demand

Key Takeaways

• Fast-tracked efficiency gains, operational upgrades, and digital transformation may drive significant margin expansion and improved earnings beyond current analyst expectations.
  
• Strategic growth in renewables, sustainable products, and expanding emerging market presence positions Sasol for higher-margin revenue, premium market access, and long-term structural growth.
  
• Heavy reliance on coal-based operations, regulatory and market headwinds, and execution risks threaten Sasol's margins, profitability, and successful transition to a low-carbon future.

Catalysts

Operates as a chemical and energy company in South Africa and internationally.

• Analyst consensus anticipates $100 million to $200 million EBITDA uplift from international chemicals cost efficiency and margin improvements, but with greater progress already made in commercial excellence, asset optimization, and the ERP rollout, there is potential for an even larger, faster EBITDA margin expansion, which can drive a step-change in group earnings and net margin nearer peer levels in the medium term.
  
• Analysts broadly agree that the completion and ramp-up of the destoning project and coal quality upgrades will gradually enhance operational efficiency and reduce costs in the South African value chain, but the operational commentary and visible momentum suggest material gains could come sooner and be larger than projected, lifting volumes and sharply reducing the breakeven price per barrel, dramatically improving net margins.
  
• The company's scale-up of renewable energy integration-including outright selective equity ownership in projects-positions Sasol to capture developer and trading margins atop future energy cost reductions, enabling margin expansion and sustained free cash flow growth as global and domestic demand for low-carbon solutions accelerates.
  
• Sasol's investments in sustainable aviation fuel, green hydrogen, and chemicals tailored to the circular economy are likely to unlock access to premium markets and long-term offtake contracts from global customers seeking sustainable alternatives, supporting structural volume growth and durable revenue uplift.
  
• As Africa and Asia see outsized growth in downstream chemicals and specialty materials, Sasol's deepening presence and exposure in these regions-coupled with product innovation-sets the stage for market share gains and multiple sources of high-margin revenue, amplifying earnings and raising the long-term growth trajectory.

Sasol Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Sasol compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Sasol's revenue will grow by 7.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.7% today to 9.1% in 3 years time.
• The bullish analysts expect earnings to reach ZAR 28.1 billion (and earnings per share of ZAR 44.14) by about September 2028, up from ZAR 6.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.6x on those 2028 earnings, down from 11.9x today. This future PE is lower than the current PE for the US Chemicals industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 23.1%, as per the Simply Wall St company report.

Sasol Future Earnings Per Share Growth

Risks

• Accelerating global decarbonization and increasing regulatory pressure pose a persistent threat to Sasol's core coal-to-liquids and synthetic fuels business, risking long-term demand destruction and potential recurring compliance costs that could reduce both revenues and net margins.
  
• Sasol remains heavily dependent on its South African coal-based operations, which exposes it to elevated political, regulatory, and power supply uncertainties domestically, leading to potential increases in operating costs and ongoing pressure on EBIT margins.
  
• The company continues to carry a significant debt burden despite recent deleveraging, rendering it highly sensitive to changes in interest rates and macroeconomic downturns, which could constrain future earnings and limit its ability to reinvest or return capital to shareholders.
  
• Prolonged global weakness in chemical markets, coupled with oversupply and intensified competition from low-cost producers in Asia and the Middle East, is likely to compress margins for Sasol's commodity chemicals segment, ultimately impacting profitability and revenue growth.
  
• Sasol faces execution risk in its diversification and decarbonization roadmap; delays or underperformance in renewable energy projects, operational setbacks at new plants, or slow progress shifting away from fossil-based products could result in missed revenue opportunities, asset impairments, and lower long-term earnings.

Valuation

• The assumed bullish price target for Sasol is ZAR175.22, which represents two standard deviations above the consensus price target of ZAR135.22. This valuation is based on what can be assumed as the expectations of Sasol's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR185.0, and the most bearish reporting a price target of just ZAR120.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ZAR310.6 billion, earnings will come to ZAR28.1 billion, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 23.1%.
• Given the current share price of ZAR124.83, the bullish analyst price target of ZAR175.22 is 28.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.