Sasol: A Undervalued Gem with Rising Cash Flow and Falling Debt

Sasol Limited, an integrated chemicals and energy business, has seen an increase in cash flow and a decrease in debt. The company's valuation is considered too cheap, making it an attractive investment opportunity. The Secunda complex in South Africa and the Lake Charles facility in the US are key assets in Sasol's operations.

Sasol Limited, an integrated chemicals and energy business, has demonstrated a significant improvement in its financial performance, making it an attractive investment opportunity. The company reported a 75% increase in free cash flow to R12.6 billion for the fiscal year ending in 2025, driven by a 16% reduction in capital expenditure and a 13% decline in net debt [1]. This turnaround is a result of strategic asset optimization and operational efficiencies, positioning Sasol as a strong candidate for long-term value creation.

Key to Sasol's success is its strategic focus on decarbonization and energy resilience. The company has made significant progress in reducing emissions, including the completion of the Destoning plant and the installation of low-carbon boilers at Natref [1]. Additionally, Sasol secured over 900 MW of renewable power purchase agreements, including the 97.5 MW Damlaagte solar PV plant, advancing its 2 GW renewable energy target by 2030 [1]. These initiatives not only align with regulatory compliance but also enhance energy resilience, a critical factor in a sector increasingly scrutinized for environmental impact.

Despite a challenging macroeconomic environment, Sasol's Chemicals America segment reported a 100% EBIT surge in FY25, driven by improved unit margins and a shift toward value-over-volume strategies [1]. This segmental resilience underscores the company's agility in adapting to market cycles, a trait that could stabilize earnings in future downturns. Furthermore, inflation-adjusted value creation through digital process optimization and AI-driven efficiency is projected to yield 3–5% EBITDA improvements, highlighting the long-term potential of its operational model [1].

The absence of a dividend in FY25, due to net debt exceeding the US$3 billion threshold, is a temporary hurdle rather than a structural flaw [1]. The company's CFO, Walt Bruns, has expressed confidence in reaching a net debt target of below US$3 billion between FY27 and FY28, which is expected to enable the reinstatement of dividends and support future growth initiatives [1].

Sasol's valuation is considered too cheap, making it an attractive investment opportunity. The company's disciplined execution of its financial framework, combined with its strategic overhauls in asset optimization and decarbonization, positions it as a compelling candidate for long-term value creation and a potential investment re-rating.

For investors, the key question is whether Sasol’s disciplined execution can translate into a sustained re-rating. The answer lies in its ability to maintain free cash flow momentum, accelerate decarbonization, and demonstrate consistent EBITDA recovery. If these metrics align with its FY27–28 targets, Sasol could emerge as a rare industrial play combining cyclical resilience with transformative growth.

References:
[1] https://www.ainvest.com/news/sasol-strategic-turnaround-free-cash-flow-momentum-catalyst-long-term-creation-investment-rating-2508/
[2] https://seekingalpha.com/article/4818687-why-im-buying-sasol-cash-flow-up-debt-down-valuation-too-cheap