Sasol FY numbers sparkle

Sasol, the largest company of its kind, anywhere in the world, reported their full numbers to June 2011 this morning. I was quite astonished that the average Rand to the Dollar exchange rate was the strongest seen for five years plus, since 2005. So this is where the notion of the strong Rand comes from. Although 2004 saw a much stronger currency, if I remember right, 5.65 to the US Dollar in latish 2004, around the same time as Hurricane Katrina.

Results, the company reported record turnover, up 17 percent in ZAR to 142.4 billion, profit for the year clocked 20.2 billion ZAR, translating to Headline Earnings per share up 27 percent to 33.85 ZAR, and the dividend a pretty handsome 13 ZAR for the full year (9.9 ZAR in the second half), matching the record set back in 2008. 2008 remember was a record year with much higher oil prices than we see now.

South African Synfuels is still powerful, but I am happy to say that the reliance is being reduced (very slowly) on this specific hugely profitable business. An amazing business with awesome margins, that is just over half of all operating profits. Synfuels international is starting to become a serious contributor. But let a picture tell more than a thousand words, here is a segmental report, comparing last year to this year. Hacked from the report, which you can download here ---> Sasol limited financial results:

This is certainly a South African favourite, over 70 thousand different shareholders tells you that. Lots of interesting snippets of information about the ownership of the company, the ADR shareholders are 5.3 percent, the employees 4.1 percent of the total issued shares. Pension funds, provident funds and unit trusts own nearly half of the company. Wow. The PIC owns 9.4 percent of the company, Allan Gray 7.9 percent, these are the two biggest shareholders. Black Rock, the world's biggest asset management firm owns 2.2 percent of the company and Vanguard (Think Jack Bogle and the ETF people in the USA) 2 percent.

Where is the excitement? Well, I can tell you where there is an immediate disappointment in the news from China, from the project update piece: "Given the delay in the approval from the Chinese government for our CTL project in China, we are developing other investment strategies and growth opportunities, both in South Africa and abroad. We have reallocated planned project funding for the China CTL project and redeployed staff to other projects. We remain committed to growing our other businesses in China." What I read into that is that Sasol will revisit the Chinese project at a later date, but fee dragging means the expertise will be allocated to other projects.

And those other projects are likely to be places like India, where it is still early stages, Uzbekistan, which is more advanced, a bigger focus on natural gas in Canada, Mozambique, Australia as well as Papua New Guinea. More interesting (but less exciting) was that during the financial year, in July 2010, Sasol concluded an agreement with a Norwegian SOE which is currently building a carbon capture facility, expected to come online this time next year. Why is this so important? I suspect for the North American Gas to Liquids plants to get the thumbs up, you will need to tick all the right boxes from an environmental point of view. We all know that Sasol is a huge polluter, but at the same time the company in their South African Synfuels division has probably done more to reduce imported inflation than any other single company. Probably. And they are a massive tax payer. Huge. Check this out:

"We have paid R25,4 billion direct and indirect taxes to the South African government. This makes Sasol one of the largest corporate taxpayers in South Africa, contributing significantly to the South African economy. We contribute about 5% of South Africa's gross domestic product (GDP), directly and indirectly. We employ approximately 34 000 people globally, of which 80% are in South Africa, and create about 200 000 additional indirect jobs."

Thanks. Please forward that section onto anyone who is calling for nationalisation of the asset, or any other private asset that is. See how many people private companies employ and more importantly, see how much tax they pay and what they contribute to the countries coffers. Thanks Sasol.

So the stock looks really cheap right now. I think the part that most people are concerned with however are the levels at which commodity prices (oil) trades at right now. Suggesting that commodity related stocks are not believing that the commodity prices are sustainable at these levels.

The way that I see it is simple. Oil is the most useful of all commodities. You cannot remake or recycle, once you have used it, it is blasted through your exhaust by way of fumes (cleaner ones) into the atmosphere. It is not like there is going to be more decomposed organic matter forming quickly. You know all of this. The easiest to extract oil and gas has been extracted already. There are more people consuming the refined products now, more than ever before. And less of it. So expect to pay more for oil in future. And again, for the folks who posses this technology, who are making geographical diversification progress across the energy spectrum, it is a keeper. We will continue to accumulate the stock.