Gasification Technologies Message Board - Msg: 27765690

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Gold/Mining/Energy : Gasification Technologies

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From: Dennis Roth	11/14/2011 9:58:03 AM
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Sasol Ltd Improving efficiency and productivity not reflected; Buy 11 November 2011 ¦ 33 pages ir.citi.com Sasol’s efficiency is improving — Yet the Sasol share price fails to even reflect improvements in the ZAR crude price since 2010, let alone gains in efficiency and productivity over the past four years. What can management control — We examine Sasol’s performance in light of that management can (and should) control. Energy and resource companies are measured on three key metrics: 1) production growth; 2) cost control and 3) productivity. – Sasol is a good SA resource company— Sasol is highly ranked (#2) when compared to diversified miners in South Africa. The higher value of energy output (relative to copper equivalent tons) and better productivity and cost control since 2007, support Sasol’s ranking. – ...but an average global energy company— Comparatively more labour and capex intensive technology (CTL and GTL) th lowers Sasol’s rating relative to energy peers (4 of 11). Sasol scores well on production growth and productivity but relative cost control and capex spend is poor. Including FY2011 (to June) paints a far better picture given better commodity prices and even further production growth. Raising TP to ZAR435/sh — We raise our FY12e diluted HEPS to ZAR47.27 (from ZAR41.31) as we mark-to-market Q3 2011 ZAR energy prices, and make minor adjustments to volumes and costs. As a result, we raise our target price to ZAR435 (from ZAR405/sh). Significant upside at spot ZAR crude — For Sasol, we believe the risk to earnings remains on the upside, with average FY2012e YTD (to June2012) Brent crude of U$112.5/bbl and ZAR/USD of 7.34 implying significant upside from Citi's base case forecasts (U$96/bbl; 7.94). Buy Sasol — Underlying operating performance continues to improve in energy and chemicals. Sasol offers production growth, strong cash flow generation (to fund value accretive projects), and a progressive dividend policy (4.5% yield in FY12e).

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