EM CEEMEA CREDIT: SASOL: Profit warning, no surprise

SASOL (SASOL: Ba1/BB+/-)

Profit warning, not surprising 

• SASOL 5.5 31 bonds have widened almost 30bp in z-spread (see chart below), following production update on 23rd Jan 25, while peers are broadly charting unchanged to marginally tighter, along with the sovereign curve.
• SASOL guiding for Adj-EBITDA for H1 24/25 of ZAR22-25bn compared to ZAR28 for same period last year. Not completely unexpected given that the co. reported disappointing production update in late January.
• A combination of issues resulted in weak volumes in H124/25, with on going coal quality issues and unrest in Mozambique resulting in lower gas volumes. Weaker QoQ chemical prices in Q2 also weighed on profitability. No further details were given for production into H124/25.
• Cash flow generation will be under pressure, for H124/25 and we expect FCF to be negligible. SASOL has limited near term debt maturities, and plenty of liquidity with ZAR15.6bn in cash & equivalents at the end of June 24.
• Sasol’s ratings were reviewed in Oct 24 by S&P and Moody’s so we don’t any rating action from these results, but if disruptions continue and FFO to debt falls below 30% then the co.’s outlook could change, probably closer to when the co reports full year results.