LAST week we looked at how the higher than expected dividend
issued by MTN Group [JSE:MTN] positively affected shareholders in MTN Zakhele.
The latest Sasol [JSE:SOL] results also have important
implications for shareholders in the Sasol broad-based black economic
empowerment share schemes, not least because those invested in Sasol Inzalo are
now able to trade in these shares, something they were not able to do at the
release of the previous set of Sasol results.
Sasol BEE share offers
The Sasol broad-based black economic empowerment public deal
consisted of two schemes; the funded invitation (Sasol Inzalo) and the cash
The funded invitation was extremely sought-after and ended
up being more than 300% oversubscribed, while the cash invitation was
oversubscribed by 13%.
The result was that investors in the funded offer received
significantly fewer shares than they had applied for. I applied for more than 2
000 Inzalo shares, and only received 175 shares.
The cash offer (SOLBE1) was simply ordinary shares offered
at a discounted price, which means shareholders receive the same dividend and have equal voting rights as SOL shares. At the end of the empowerment
period SOLBE1 shares become SOL shares in a ratio of 1:1.
The funded offer (Inzalo) saw investors pay an average of
R22 per share for Sasol shares trading at more than R400 at the time.
The difference between the price paid and the price of the
shares at the time was R366 per Sasol share, and this was funded with debt. The
dividends from Sasol over the empowerment period would be used to service this
At the end of the empowerment period shares will be sold to
settle the remaining debt, and the remaining shares distributed to Inzalo
The success of this deal is driven by three factors: the
cost of debt over the period, the amount of dividends paid by Sasol over the
period, and the exit price of Sasol shares at the end of the empowerment
Sasol interim results
Sasol produced a good set of results for the six months
ended December 31 2011, with operating profit up 70% to R20.5bn and headline
earnings a share up 81% to R23.50. The group declared an interim dividend of
R5.70, up 84% on the previous comparable period.
These results were supported by the oil price being at an
average of $111 a barrel and a weaker R/$ exchange rate in the latter part of
The company’s share price is significantly above the 52-week
low level of R303 per share, trading around the R400 level for much of 2012.
A top rated analyst expects the dividend for the current
financial year to be around R18.50 a share, up 42% on last year.
was before the introduction of dividends withholding tax and the increase in
the rate to 15%. That would imply an expected dividend of around R17.30 a
What does this mean for Sasol’s BEE investors?
Those invested in SOLBE1 can look forward to a healthy
dividend yield while they wait for the empowerment period to end in September
SOLBE1 is currently trading around R270 a share which means that based on
the projected dividends, shareholders will receive a dividend income of 6.41%
after the dividend tax.
This is significantly higher than pre-tax interest rates
that one can earn at a bank or in a money market fund.
In addition to this income, if the share price of SOL
remains at current levels until September 2018, then SOLBE1 shareholders can
expect capital growth of around 45% as the discount unwinds.
Funded offer (Inzalo)
The value of the Sasol shares held by Inzalo has been
increasing since June 2009, from R4.3bn to R5.7bn at the end of June last year.
However, the corresponding debt burden has also increased from R5.8bn to R6.2bn
over the same period due to interest costs.
With the share price increasing from around R350 in June
last year to the current R400 a share, the asset base could be worth around
R6.5bn at the moment.
The 84% increase in the interim dividend takes the total
dividend earned over the past year to R15.60 a share, up from R10.80 the
The increased dividend together with the current low
interest environment bodes well for Inzalo shareholders who will see interest
costs remain stable, but revenue increasing significantly (by about
This should lead to a decreasing debt burden in Inzalo. As a
result of the debt costs, Inzalo shares are actually at a negative value of
R21.70 per share.
However, given the latest Sasol dividend, the share price
will be close to positive which means Inzalo shareholders are already “in the
money” and will benefit directly from any increase in the share price or
While the current value is still significantly lower than
the price paid by investors (average R22 a share), the turnaround in the
financial position of Inzalo is positive.
It will be interesting to see if the board of Inzalo decides
to pay a dividend now that it is able to do so for the first time.
I suspect that they may wish to take advantage of the
improved financial position to service as much of the debt as possible. These
results paint a positive picture for Sasol’s many BEE investors but, as always,
risk is ever present when investing in shares.
The empowerment period runs until September 2018 which is
more than six years away. This is a reasonable investment horizon for any
equity investment and investors should consider holding onto their shares if
SOLBE1 shares look attractive from a yield perspective and from a
*Gradidge is a co-founder of Gradidge-Mahura Investments, a
new generation financial planning business based in Melrose Arch. He owns
SOLBE1 and Inzalo shares.
- City Press