Gold shares are shining bright, while Sasol may need a rights issue

CAPE TOWN – Predictably, Sasol’s share price fell 8.38percent on the JSE on Friday to close at R77.11 after announcing a strategy to mitigate Covid-19 and the lower oil price that will possibly include a $2billion (R35.2 billion) rights issue.

Adding to the earnings dilution woes for shareholders was a warning that headline earnings per share were expected to fall by at least 20percent, compared with the R3.72 reported for the year ended June 30, 2019.

Other parts of the strategy included a cash conservation programme, an accelerated and expanded asset disposal and partnering programme.

JSE analysts often say that share prices of good companies invariably recover after a rights issue, to at least the price it was before. Judging by the elasticity of Sasol’s share price in the last few months, this is not at all impossible. The share was trading at R312 on January 3. It fell off a cliff in the global market contagion in March, to as low as R21.88 on March 23, and has since then clawed back some of the lost value.

When the share price was trading at around R30 a share, a friend who does not usually trade shares called me and asked if I believed Sasol was a good buy at such a low price. I told him that the share price was indeed low, but that I wouldn’t buy the share.