SOL: Surfactant Commercialization And Higher Margins Will Drive Future Performance

Key Takeaways

• Accelerated renewable energy transition and operational improvements are enhancing margins, reducing risk, and positioning Sasol favorably in a changing regulatory environment.
  
• Strategic growth in specialty chemicals and emerging markets boosts earnings resilience, stabilizes cash flow, and supports long-term revenue expansion.
  
• Heavy reliance on fossil-fuel technologies, operational setbacks, weak chemicals demand, high debt, and ESG pressures collectively threaten profit growth and long-term investor confidence.

Catalysts

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

• Sasol's accelerated deployment of renewable energy projects (over 900 MW secured, with a 2 GW target by 2030) and ongoing implementation of the emission reduction roadmap are positioning the company to benefit from global and regional policy support for cleaner energy, reduce carbon tax liabilities, and capture cost savings. This should improve net margins and support long-term earnings as the energy mix shifts and regulatory frameworks become more favorable.
  
• Sasol's deleveraging momentum, with net debt down to $3.7 billion (lowest since 2016), continues to reduce financial risk, lowering interest expenses and eventually paving the way for dividend reinstatement (targeting a 30% free cash flow payout once net debt is under $3 billion). These steps enable higher future returns to shareholders and improve return on equity.
  
• Sasol's focused expansion in specialty chemicals and margin-accretive product lines enhances earnings resilience amid commodity cyclicality, and leverages rising demand in emerging markets-especially in Africa and Asia-contributing to revenue growth and more stable cash flows.
  
• Operational improvements such as the commissioning of the destoning plant, progress in mining and gasifier reliability, and cost-saving programs anchored in capital and supply chain excellence are expected to drive production recovery, reduce breakeven costs per barrel, and further enhance gross and operating margins.
  
• The global structural undersupply of chemicals, rising urbanization, and infrastructure development, particularly in Africa and Asia, present significant long-term market growth opportunities for Sasol, boosting the company's addressable market and supporting sustained revenue expansion as supply constraints ease and regional demand accelerates.

Sasol Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sasol's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 8.1% in 3 years time.
• Analysts expect earnings to reach ZAR 22.8 billion (and earnings per share of ZAR 35.51) by about September 2028, up from ZAR 6.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ZAR26.7 billion in earnings, and the most bearish expecting ZAR15.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.1x on those 2028 earnings, down from 12.1x today. This future PE is lower than the current PE for the US Chemicals industry at 11.2x.
• 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 22.78%, as per the Simply Wall St company report.

Sasol Future Earnings Per Share Growth

Risks

• Sasol's core reliance on coal-to-liquids and gas-to-liquids technology exposes it to long-term decarbonization pressures, rising carbon tax and regulatory risk, and potential demand erosion for fossil-based products, which could compress net margins and reduce future earnings.
  
• Persistent operational challenges-including ongoing coal quality and gasifier availability issues, slow ramp-up of new projects (like the destoning plant), and production volume fluctuations-create risk of failing to restore or grow revenue, limiting deleveraging and hampering profit growth.
  
• International chemicals markets remain in a prolonged cyclical downturn, with only gradual and uncertain recovery expected; this structurally weak demand-especially in Europe-can put downward pressure on prices and wrestling down Sasol's global revenues and EBITDA.
  
• The company's high gearing and net debt position ($3.7bn, with a target below $3bn still years away) restricts financial flexibility, increasing exposure to interest rate hikes, refinancing risk, and higher financing costs, which can erode net profit and delay dividend reinstatement.
  
• Industry-wide and company-specific ESG trends-such as investor divestment from fossil fuels, higher cost of capital for carbon-intensive assets, and pressure to shift into sustainable products-may increase Sasol's long-term funding costs and reduce its ability to capture new investment, ultimately weighing on enterprise value and shareholder returns.

Valuation

• The analysts have a consensus price target of ZAR134.111 for Sasol based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR280.2 billion, earnings will come to ZAR22.8 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 22.8%.
• Given the current share price of ZAR126.93, the analyst price target of ZAR134.11 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.