Sasol Limited (ADR) (SSL)

jmweese (95.31) Submitted: 9/09/08 7:48 PM : Start Price: $42.50 SSL Score: -15.63

While SSL uses Fischer-Tropsch technology that has been available for over 50 years, this company is not a stodgy old company. SSL is the leader in using this technology. Their website contains their sustainability study which reveals some interesting facts about their business. Sasol produces not only synthetic fuels but also mines coal, produces chemicals/plastics/waxes, produces oil, produces natural gas, fertilizer, as well as marketing natural gas like Oneok does here in the US.

So why choose this company?
- The US has an estimated 400 year supply of coal and even though oil prices have dropped drastically...they will once again return to their highs over the next ten years as more and more people worldwide require transportation.
- Sasol is currently the leader in synthetic fuel production. Yes, the oil majors are working on it and yes other smaller companies worldwide are creating their own fuels but, here is the key, Sasol is the only one engaged in large scale production (other little companies aside, compare SSL's Synfuel revenue to those of its competitors). Its Synfuels unit contributed 21% of its revenue in 2007. Being the leader has its advantages as this company can and is licensing its technology around the world. Hey, who needs oil and gas when you can just license the technology and make royalties.
- Sasol explores and produces oil in Africa (the Oil segment contributed 27% to Sasol's income in 2007) and thus has a toe-hold on one of the last growth areas in the world.
- Sasol produces fertilizers. No, fertilizer is not SSL's specialty like it is for Potash of Saskatchewan but as the demand for food grows the prices of fertilizers will stay high and, well, SSL harvests a little extra revenue.
- I like that Sasol produces chemicals as well and has production companies in Germany and other parts of Europe.

One quick note about Cons:
- High inflation in Africa especially in electricity
- Shaky political environment (South Africa is stable now but so was Zimbabwe five years ago)
- Declining price of oil (for now)
- Alternatives to oil and increasing competition from the oil majors

Overall, I think this company has a nice mix of synthetic fuels, natural gas and oil production, coal mining, and chemicals. I have bought this stock several times as it fell from its 52-week high and will probably buy more if it falls further. Plus, I see no reason why the stock dropped almost 13% on September 9th after news it had increased its revenue 32%?! According to some DCF models, this company is undervalued by nearly 40%! Oh well...I will buy up and wait for others to find this company.

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