TLM

Last week, ADRs of Sasol Ltd. (SSL) hit a 52-week high of $60.39. The South Africa-based petrochemicals group has seen its share price climb approximately 50% since the end of August last year, as investors have been buying the stock for its attractive fundamentals and positive outlook. The turnaround in fuel prices amid recent optimism about the economic recovery has added to this bullishness.

Sasol, which has recently signed two transactions with Canadian energy explorer Talisman Energy Inc (TLM) to enter the North American shale gas market, has a Zacks #2 Rank (Buy rating) in the short run.

The co-operation with Talisman is part of Sasol’s previously laid out plans for a significant outlay in upstream shale gas resources associated with its gas-to-liquids (“GTL’) projects in North America, apart from unlocking additional value in the world-class Montney shale play.

In recent times, Sasol – a pioneer in the area of synthetic petroleum alternatives – has continuously focused on the commercialization of its GTL technology by constructing plants in gas-rich regions of the world that will strengthen its position in the industry in the coming years.

The company, which constructed the world’s first commercial-sized GTL plant in Qatar, plans to leverage the opportunity to arbitrage between gas and oil prices. Under normal circumstances, the ratio of the price of oil (measured in $ per barrel) to the price of natural gas (in $ per million British thermal units) fluctuates between 6 and 12. However, in recent times, this has decoupled to an unprecedented degree, up at around 25.

With gas prices remaining at depressed levels and thereby diverging significantly from high oil prices, Sasol is looking to utilize the spread by using its GTL technology that is expected to be more profitable than the company’s traditional business of producing motor fuels from coal. 

A robust balance sheet and strong cash position are other positives in the Sasol story. As such, we believe the Johannesburg-based entity is favorably positioned to continue to accelerate revenue and earnings growth over the next few quarters.

Incorporated in 1979, Sasol is an integrated energy and chemicals company. It is the leading provider of liquid fuels in South Africa and a major international producer of chemicals.

Sasol is fairly unique compared to other international oil companies as it has limited conventional exploration and production operations and uses a proprietary technology (Fischer-Tropsch) to manufacture synthetic fuels (synfuels) and chemicals from low-grade coal and natural gas. Sasol manufactures more than 200 fuel and chemical products that are sold worldwide.

 
SASOL LTD -ADR (SSL): Free Stock Analysis Report
 
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