Sasol A Buy At Citigroup On Belated Bearish Market Sentiment, Priced-In Downside

The comments come a day after the company disclosed record production volume at Secunda Synfuels operations and that normalized chemicals sales volume was up for the full-year period ended June. Following these two positive news, the stock traded higher in the pre-market trading on Wednesday.

Analyst Johann Steyn thinks it was a mistake for Sasol to allocate capital to LCCP. However, Steyn continued that the downside appears to have been priced in. Therefore, the analyst advised investors to think beyond the LCCP project in considering the stock.

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Related Link: Morgan Stanley Upgrades Sasol To Overweight, Says Valuation Failing To Price In Near-Term Catalyst

In a research note to clients, the brokerage said, "In addition to our 50:50 weighted PE and DCF valuation method (which suggests c.30 percent upside from here), we conduct a detailed historical dividend yield analysis in this note. We show that investors who historically bought Sasol at dividend yields (DY) above the mean (similar to current levels) have been rewarded with average 1, 2 and 3 year returns of 27 percent, 80 percent, and 97 percent, respectively."

The analyst pointed out that such dividend yields were achieved during the negative news flow times. Steyn quoted Warren Buffett's statement "investors sometimes pay dearly for a cheery consensus" to support his investment thesis.

The brokerage pointed out that investors have failed to see attractive economics of the current business of Sasol.

At time of writing, Sasol was up 4.49 percent at $26.78 on Wednesday shortly after the opening bell.

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