A share in Sasol, after peaking around R650, is currently trading just below R400. The oil price, according to Goldman Sachs, is heading to US$40 a barrel.
Why would anyone in their right mind invest in Sasol?
“I don’t agree with Goldman Sachs,” says Chris Gilmour, Analyst at Absa Wealth and Investment. “I think the oil price will bottom out a bit higher than that. And when that happens the rebound will be fairly swift. I’m not saying prices will recover to US$100 a barrel, or even US$80, but we’ll get back to US$65/US$70 without much difficulty.”
Gilmour points to a massive drop in oil exploration in the wake of the recent oil price crash and production levels that are already tapering off in higher cost areas. “It’s a self-correcting mechanism. If you go back to 2009; that rebound was very swift as well.
“When the oil price inevitably recovers; Sasol at around R300 will represent extremely good value,” concludes Gilmour.
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This article first appeared on 702 : Buy Sasol shares (despite very cheap oil) – market analyst