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On Thursday, BofA Securities issued a downgrade for Sasol Limited (NYSE:SSL) stock from Buy to Neutral. The stock, currently trading at $4.66 and near its 52-week low, has shown significant volatility with a beta of 2.13. According to BofA Securities, a significant recovery in Sasol’s chemical and operations segments does not appear to be on the horizon. While InvestingPro analysis suggests the stock may be undervalued, analysts predict that the company is unlikely to issue a dividend in the first half of fiscal year 2025, despite its current dividend yield of 3.64%.
The financial institution has reduced its EBITDA forecasts for Sasol for fiscal years 2025 to 2027 by 23%. This adjustment is attributed to slower-than-expected recovery in chemical spreads, which are responsible for approximately half of the EBITDA reduction, and decreased volumes following the company’s recent production guidance cut for FY25E, accounting for the remaining half. Currently, Sasol maintains an attractive EV/EBITDA multiple of 2.19x and a solid gross profit margin of 44.24%, according to InvestingPro data.
BofA Securities has also significantly decreased Sasol’s price objective, taking it down by 47% from ZAR 197 / $10.89 to ZAR 105 / $5.68. This new target is influenced by several factors, including the lowered EBITDA projections, which account for 32% of the price objective reduction. Weak operations have also led to lowered target multiples for various business segments, contributing 7% to the decrease. Furthermore, a higher weighted average cost of capital (WACC) of 13.5%, up from the previous 12.1%, is responsible for an 8% contribution to the reduction in the price target.
Despite the downgrade and lowered price target, BofA Securities suggests that an operational recovery roadmap for Sasol in the medium term could present an upside risk for the stock. This indicates that if the company can demonstrate a clear path to improving its operations, there may be potential for the stock’s valuation to increase. For deeper insights into Sasol’s valuation metrics and 13 additional ProTips, including detailed analysis of its financial health and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, South African chemicals-and-energy group, Sasol, experienced a minor decrease in first-half mining production, while natural gas output saw a rise. The company’s mining saleable production slipped 1% to 15 million metric tons, while natural gas production increased by 2%, reaching 61.6 billion square cubic feet. However, the company’s revenue managed to increase by 1% to $3.82 billion, driven by an 8% rise in average sales basket price. Sasol reaffirmed its full-year guidance for its mining and gas divisions, despite disturbances in Mozambique and a fire at its Natref refinery.
In other recent developments, Sandstorm Gold Ltd (TSX:SSL)., a gold royalty company, announced several updates on its portfolio of stream and royalty projects. The Robertson mine, operated by Nevada Gold Mines, received its final major federal permit, with production expected to begin in 2027. The company also reported progress at the Hod Maden project in Turkey, the Hugo North Extension in Mongolia, the Aurizona Piaba pit in Brazil, and the Chapada mine in Brazil. Sandstorm holds royalties and streams on all these projects, reflecting its growth strategy and diversified low-cost production profile.
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