Business Report Opinion

State's oil price control structure helps put more sizzle into Sasol

Published

The corporate week should kick off with a bang as Sasol delivers what is sure to be another set of high-octane annual results today.

The results for the 12 months to June are expected to have been boosted by the rand's weakness since the beginning of Sasol's financial year and the general rise in crude oil prices since the September 11 attack in the US.

Crude oil prices have risen a third this year and the precarious global economic environment, not to mention the sabre rattling by the US, makes the likelihood of a large decline in the oil price over the next 12 months pretty remote.

The best thing about investing in Sasol is that the fuel-from-coal pioneer benefits strongly from the government's fuel price control mechanism.

As the international price of oil rises, so the local petrol price rises. Sasol sells its petrol for more rands while its input costs basically remain the same.

If the petrol price goes too low, Sasol gets a kickback from the government to keep production going. These are not bad investment odds.

Sasol's share price has gone up by nearly half so far this year, but my guess is there is more to come.

In its quest to reduce its reliance on synthetic fuel, Sasol has become a major chemical manufacturer. With the rest of the global chemicals industry in a slump, and given its not insubstantial cash resources, the firm may well spring one or two acquisition surprises.

Seardel Investment Corporation, the country's largest clothing manufacturer, is likely to please investors no end this week.

Clothing retailers have reported booming winter sales, while exports to the US continue to surge as the benefits of the Africa Growth and Opportunity Act filter through.

At the interim stage Seardel reported a 157 percent surge in operating profit to R78 million, on the back of a 67.8 percent hike in revenue to R1.79 billion.

Its production capacity has been fully taken up over the past few months, and exports to the US should continue to rise strongly over the next few years, enabling the group to smooth over those fluctuations in capacity use created by the waxing and waning of the smaller local economy.

Seardel's share price performance has been a bit disappointing, even if one takes into account the discount the share must be trading at because of the pyramid holding company structure, which is in place to maintain family control of the company. The price for most of the year has been fairly static at Friday's R2.60 close.

My guess is that investors are probably still waiting to see how Frame is fitting in, and perhaps Thursday's results will also shed some light on the consolidation taking place among some of Seardel's operating companies.

The clothing and textile sector has been a dowdy cousin on the exchange for some time, but Seardel has taken the bit between its teeth. If there are no surprises, the share price should grow somewhat.

Anglo American, whose share price has been battered by the debate on black ownership of mines, releases its results for the six months to June tomorrow.

Bloomberg News took a poll of mining analysts, who predicted a 9.8 percent decline in net income, excluding one-time items, in the first half. This decline would have been driven by lower profit from its major source of income, Anglo American Platinum (Angloplat).

Anglo American has been working hard on its image of late. It has been at the forefront of negotiations with the government about black empowerment in the mining industry and has made it on to the London Stock Exchange's corporate responsibility index.

It has also been tidying up its businesses, and investors will be watching for any further signs that Angloplat will be the next Anglo company to delist.