SA Asset Managers Sell R9bn in Sasol Shares: Major Exit Explained

Institutional Investors Reduce Sasol Holdings Amid performance Concerns

Between October and December 2024,two of south Africa’s largest asset managers,Coronation and Stanlib,significantly reduced their holdings in Sasol shares. This shift reflects growing concerns about the company’s production performance, long-term decarbonization prospects, and overall valuation. The combined divestment totaled R9 billion, placing downward pressure on Sasol’s share price.

Major Sell-Off Drives Share Price Decline

The selling pressure from Coronation and Stanlib likely contributed too the decline in Sasol’s share price, which fell from R100 to R80 during the same period. Coronation’s Top 20 fund entirely sold its Sasol position, equating to 6.2 million shares.”This equated to 6.2 million shares in Sasol,which saw the value of its exposure to the stock drop from R7.2 billion at the start of the fourth quarter to zero.” The actual revenue generated from thes sales was likely less, considering the stock traded below R90 for most of the period.

Coronation’s Strategic Repositioning

At the end of September 2024, Sasol represented 2.5% of Coronation’s Top 20 fund, described as “a focused portfolio of our top stock picks on the JSE.” However, portfolio managers Neville Chester, Nicholas Stein, and nicholas Hops “took advantage of the market moves to do some repositioning within the fund.” They explained, “At a sectoral level, we cut the resource position in favour of industrials and, to a lesser extent, financials.” This repositioning reflects a broader shift away from resource-heavy investments due to concerns about future performance.

Doubts About Oil Price and Production

Coronation’s decision was driven by a lack of confidence in future oil prices and Sasol’s operational challenges. They “reduced” their “exposure to Sasol in this period despite the very cheap valuation, as we are no longer particularly bullish on the oil price which is necessary to drive earnings at Sasol given the company’s poor production performance and outlook.” this statement underscores the intertwined risks of commodity price volatility and company-specific operational inefficiencies.

Stanlib’s broad Reduction

Stanlib also reduced its exposure to Sasol, exiting its holdings in the Equity Fund and Enhanced Multi Style Equity Fund. Additionally,it reduced holdings across various othre funds,including the Diversified equity Fund,Multi-Asset Growth Fund,Multi-Asset Cautious Fund,Multi-Manager Balanced Fund,Multi-Manager SA Equity Fund,and Multi-Manager Real Return Fund. This widespread reduction suggests a broader strategic shift away from Sasol within Stanlib’s investment portfolio.

Contrarian Bets: Funds That Increased Sasol Holdings

Despite the overall negative sentiment, some funds saw an possibility. Seven unit trusts bought notable amounts (over 200,000 shares) of Sasol stock in the fourth quarter of 2024.These included the Allan Gray Balanced fund, the Allan Gray Stable Fund, the Old Mutual Investors Fund, and, curiously, the Coronation Resources Fund. This last fund’s investment raises questions, given Coronation’s exit from the Top 20 fund.

Coronation Resources Fund’s Viewpoint

Portfolio managers Hops and Stein, who also manage the Top 20 fund, offered a different perspective for the Resources Fund: “After not having owned Sasol for some time, we bought a starter position in the fourth quarter as the share price approached R90.” They acknowledged the uncertainties surrounding Sasol: “Whilst there are a lot of uncertainties in Sasol’s investment case about its ability to consistently produce product and about its long-term future in a world that is attempting to decarbonise, we believe these risks are being more than sufficiently discounted in the spot price.” This suggests a belief that the market has overreacted to Sasol’s challenges.

Valuation-Driven Investment

The Resources Fund views Sasol as undervalued based on future cash flow potential: “Sasol is trading on 11x its free cash flow in one year’s time on a very depressed earnings base. As earnings and cash flows normalise in the years to come, we believe it is indeed trading on 2.2x cash flows in four years’ time and has well over 100% upside.” This contrarian view highlights the divergence in investment strategies among different funds, even within the same asset management firm.

Exxaro Exit: Concerns Over Capital Allocation

Coronation’s Top 20 fund also exited its “long-held position” in Exxaro. The fund recognized that “the company misallocating capital under pressure to buy assets outside of its existing businesses has become a significant risk.” Concerns about capital allocation efficiency can significantly impact investor confidence and lead to divestments.

The Road Ahead for Sasol

The decisions by major asset managers to reduce their Sasol holdings underscore the challenges the company faces. Operational inefficiencies, decarbonization pressures, and fluctuating commodity prices all contribute to investor uncertainty. While some funds see an opportunity for value, the overall sentiment remains cautious. Investors should closely monitor Sasol’s performance in addressing these challenges and its ability to adapt to a changing energy landscape.

Given Dr. Sharma’s analysis, what specific operational improvements should Sasol prioritize to boost investor confidence?

Institutional Investors Reduce Sasol Holdings: An Interview wiht Energy Analyst, Dr.Anya Sharma

Sasol, the South African energy and chemical company, has recently faced increased scrutiny as major institutional investors, including Coronation and Stanlib, substantially reduced thier holdings.We sat down with Dr. Anya Sharma, a leading energy and investment analyst at FutureWise Insights, to discuss the implications of these divestments and the road ahead for Sasol. Dr. Sharma specializes in analyzing energy markets and their impact on investment portfolios.

Sell-Off Impact: Understanding the Investor Sentiment

Archyde: Dr. Sharma,thank you for joining us. Recent reports indicate a substantial sell-off of sasol shares by major investment firms. What’s the primary driver behind this shift in investor sentiment?

Dr. Sharma: Thank you for having me.The primary driver is a confluence of factors. Firstly, concerns about Sasol’s production performance have been mounting. Secondly, the long-term prospects for decarbonization pose a significant challenge to Sasol’s business model, and investors are increasingly factoring this into their valuations. thirdly,and perhaps most immediately,some firms are simply unconvinced Sasol’s current valuation adequately reflects the risks.

Operational Challenges and Decarbonization Pressures on Sasol

Archyde: Production performance and decarbonization – let’s delve deeper.How significantly are operational inefficiencies impacting investor confidence in Sasol, and how will decarbonization pressures impact future earnings?

Dr.sharma: Operational inefficiencies directly translate to lower profitability. when Sasol struggles to meet production targets, it impacts their ability to capitalize on favorable commodity prices. Regarding decarbonization, the transition to cleaner energy sources poses a fundamental challenge to Sasol, which relies heavily on coal-to-liquids technology.The company needs to demonstrate a clear and credible pathway towards sustainability to reassure investors. They will need to convince investors they either have the technologies/capacity to transition to cleaner sources; or that there is likely to be enough global demand for their assets to generate a viable return on investment at acceptable Carbon prices.

Contrarian Views: Why Some Funds Increased Sasol Holdings

Archyde: It’s interesting to note that while some funds were selling,others,including the Coronation Resources fund,were buying. What’s behind this divergence in investment strategies?

Dr. Sharma: This reflects a difference in risk appetite and investment horizon. Funds like the Coronation Resources Fund may see Sasol as fundamentally undervalued, believing that the market has overreacted to the company’s challenges.They are essentially betting that Sasol can turn things around and that its long-term potential is not fully reflected in the current share price. They believe that the risks surrounding operational challenges/decarbonisation have been overdiscounted into the current price.

Exxaro Exit: The Importance of Capital Allocation

Archyde: Coronation also exited its position in Exxaro,citing concerns over capital allocation. How crucial is effective capital allocation for resource companies in maintaining investor confidence?

Dr. Sharma: Effective capital allocation is paramount.Investors wont to see that companies are using their capital wisely, investing in projects with strong returns and avoiding missteps that could erode shareholder value. The concerns surrounding Exxaro highlight the importance of strategic decision-making in the resource sector. Investors need to trust that company management can make sound decisions regarding acquisitions and divestments.

The road Ahead for Sasol: A Call to Action

Archyde: what are the key steps Sasol needs to take to regain investor confidence and navigate the challenges ahead?

Dr. Sharma: Sasol needs to address its operational inefficiencies, articulate a clear and credible decarbonization strategy, which should ideally be in place by 2025, and demonstrate sound capital allocation decisions. Clarity and open interaction with investors are also crucial. The company must effectively communicate its plans and its ability to adapt to a changing energy landscape. They should look at providing quarterly decarbonisation or environmental reports, to hold themselves to account.

Archyde: Dr. Sharma, thank you for yoru insightful analysis.

Dr. Sharma: My pleasure.

What Are Your thoughts on Sasol’s Future?

What are your thoughts? Do you agree with dr. Sharma’s analysis? What steps do you believe sasol should prioritize to regain investor confidence? Share your opinions and insights in the comments below!