Taking Stok - Lockdown restrictions still evident in Sasol operations

In today 's taking stock, we discuss Sasol that still feel the evidence of lockdown restriction's on its operations.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Shares on the Johannesburg Stock Exchange edged lower on Friday, extending a fall from Thursday, as foreign investors continued to take profits. The benchmark All-Share index closed down 0.68% (to 66,937 index points) and the blue-chip Top 40 index lost 0.67%. The local stock market, which has been among the best performing bourses in emerging markets this year, gave a negative return of 1.18% in April. Friday's fall was led by the country's banks, often considered to mirror local economic recovery prospects. The banking index reversed all its April gains and ended 3% lower, also halting a four-day winning streak.

 

EUROPEAN MARKET COMMENTARY

European stocks closed lower on Friday after data showed a contraction in euro zone economic growth in the first quarter. The pan-European Stoxx 600 ended down more than 0.3%, with most sectors in negative territory and major bourses pointing in opposite directions. Mining stocks led the losses, down 1.8%. The euro zone’s gross domestic product fell 0.6% in the first quarter, according to preliminary data released by Europe’s statistics office Eurostat on Friday morning. It means that the bloc suffered a second technical recession in just over a year, although economists are hopeful of an economic recovery in the coming months.

 

US MARKET COMMENTARY

The major averages slipped on Friday as investors took profits amid a flurry of earnings results and a robust profit beat from e-commerce giant Amazon. Despite Friday’s weakness in equities, the S&P 500 notched its third straight month of gains in April, adding more than 5% to the index as investors bet on a big economic and profit recovery from the pandemic. More strong economic data was released on Friday, continuing a trend that’s lifted stocks all month. March spending jumped a better-than-expected 4.2%, while personal incomes surged by a massive 21.1% amid more fiscal stimulus.

 

ASIAN MARKET COMMENTARY

Stocks in Asia-Pacific were mixed in morning trade today, with thinner trading volumes expected as major markets in China and Japan are closed for holidays. Investors in Asia-Pacific will continue monitoring the Covid situation in India as the country continues to battle a deadly second wave of infections. Over the weekend, more than 400,000 daily new cases were registered for the first time.

 

CURRENCY MARKET COMMENTARY

The rand eased on Friday as weaker-than-expected Chinese factory indicators and firmer economic growth in the United States put demand for riskier currencies under pressure. At the close, the rand was 1.26% weaker against the dollar as it finished the week at R14.48 against the greenback. South Africa on Friday posted its largest trade surplus on record for March at 52.77 billion rand ($3.67 billion), from a revised 31.22 billion rand in February, driven by higher commodity and mineral exports.

 

COMMODITIES MARKET COMMENTARY

Gold prices ticked up this morning, supported by a muted dollar ahead of a series of US data, while auto-catalyst metal palladium held firm after surpassing $3,000 per ounce on concerns over supply shortage in the previous session. US Treasury Secretary Janet Yellen on Sunday tamped down concerns that President Joe Biden’s plans for infrastructure, jobs and families will cause inflation, saying the spending will be phased in over a decade. Oil prices climbed today as optimism about a strong rebound in fuel demand in developed countries and China in the second half of the year overshadowed growing concerns of a full lockdown in India to curb the COVID-19 pandemic.

LOCAL COMPANIES

Steinhoff International Holdings (SNH) +0.9%

South African conglomerate Steinhoff International Holdings could consider an equity issue, its CEO said on Friday, as the retailer looks to reduce its debt and financing costs. At an annual shareholder meeting, chief executive officer Louis du Preez was asked whether the company would consider an equity issue once it has settled about 90 separate legal claims against it following a 2017 accounting scandal. “One of the options that we will potentially look at, there are many options, is potentially an equity raise. Obviously, no decision has been made in that regard,” he told shareholders, without elaborating on what the funds might be used for. The furniture and clothing retailer is preparing to meet the costs of a $1 billion global lawsuit settlement plan by selling some of its majority-owned African subsidiary’s shares, among other steps. South Africa-headquartered and Netherlands-registered Steinhoff has been selling off assets and planning to list its Pepco Group discount retailer business to reduce debt and financing costs.

 

Sasol (SOL) -2.8%

While Sasol reported that it continued to see a strong recovery in demand for liquid fuels and gas following the easing of Covid-19 restrictions, the figures show that it still caught the tail end of the restrictions on travel during the last nine months. The production report for the nine months to end March indicated largely unchanged production volumes in most of the business units compared to the first nine months of the previous financial year when production was severely affected by lockdown regulations. Thus, the one set of figures caught the beginning of the Covid-19 disruptions and the latest caught the last few months. The production of fuel at the Sasol Synthetic Fuels (SSF) plant in Secunda was largely unchanged between the two nine-month periods at 24.3 million barrels in the nine months to March 2021 compared to 24.8 million barrels in the first three quarters of the previous financial year. Management reported that SSF is currently running at around 90-95% of capacity. However, production at the Natref refinery was still way below where it should be, largely as a result of lower demand for jet fuel from the depressed aviation industry. “Natref production for the nine months ended 31 March 2021 was, as expected, 15% lower than the prior year. “Jet fuel demand continues to remain constrained and is expected to be below pre-Covid-19 levels for at least the next 12 months,” according to the production update published on Thursday morning (April 29). The revised target is some 20% lower than the production in a normal year, based on a look at a few older annual reports. Management also warns that further Covid-19 lockdown restrictions could negatively impact on its forecast for overall sales volumes. Production figures from the mining division show a similar trend. Production was largely unchanged in the period under review, with management adding a little bit of good news – export sales increased from 1.5 million tons to 2.1 million tons to take advantage of higher international coal prices.

INTERNATIONAL COMPANIES

AstraZeneca (AZN) +4.3%

AstraZeneca said on Friday its Covid-19 vaccine contributed $275 million in sales and shaved off three cents per share from its first-quarter earnings, as the drug maker reported better-than-expected results and forecast sales growth. This is the first time the drug maker has given financial details from the distribution and sales of its vaccine. It has said it will not make a profit from the shot during the pandemic. Vaccine revenue included delivery of about 68 million doses worldwide, it said. Sales in Europe were $224 million, emerging market sales were $43 million, and $8 million in the rest of the world, it said. Total revenue, which includes payments from collaborations, rose 11% to $7.32 billion for the three months to March on a constant-currency basis, while core earnings stood at $1.63 cents per share, the Anglo-Swedish drug maker said.

 

Exxon Mobil (XOM) -2.9%

Exxon Mobil returned to profitability during the first quarter, beating top- and bottom-line estimates for the period, as the company recovers from the havoc wreaked on the energy sector by the coronavirus pandemic. The oil giant earned $2.7 billion during the period. The company posted earnings per share of 65 cents, excluding items on $59.15 billion in revenue. Wall Street analysts surveyed by Refinitiv expected the company to earn 59 cents per share on $54.6 billion in revenue.

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