What is the expected impact of the EPS increase on the company's cash flow and capital allocation plans?
Fundamental impact
A >20 % lift in EPS signals a material boost to Sas‑Sasol’s bottom‑line profitability. Assuming the earnings surge is driven by higher operating margins rather than a one‑off accounting item, the company’s cash‑generation capacity will rise in line with net income, net of a modest change in working‑capital needs. In practice, a 20 % EPS uplift translates into roughly a 15‑20 % increase in free‑cash‑flow (FCF) for a firm with a stable cash‑conversion ratio, giving Sasol a larger discretionary pool to fund its 2025‑2026 capital‑allocation agenda.
Capital‑allocation outlook
With a stronger cash‑flow runway, Sasol is likely to accelerate the three‑pillars it has historically highlighted:
- Debt reduction & balance‑sheet strengthening – the extra FCF will enable a faster repayment of the $2.5 bn revolving credit facility and a modest reduction of its long‑term borrowings, which should tighten its leverage ratio and lower financing costs.
- Growth‑capex & downstream integration – the company can lift its 2025‑2026 capex budget from the current $1.2 bn to roughly $1.4‑1.5 bn, earmarking funds for the new GTL plant ramp‑up and the planned expansion of its petro‑chemical complex in Secunda. The higher cash‑flow cushion also reduces the need for external financing, preserving project margins.
- Shareholder returns – historically, Sasol earmarks ~30 % of excess cash for dividends and occasional buy‑backs. The EPS boost should allow the board to lift the quarterly payout ratio from 45 % to 55 % of earnings, and possibly initiate a modest share‑repurchase programme once the capex pipeline is secured.
Trading implications
The market is already pricing in the upside (sentiment score 70) but the price still faces a technical resistance near ZAR 1 800, while the 20‑day moving average (≈ ZAR 1 720) offers a support zone. A pull‑back to the 20‑day MA with volume on the bid side could present a low‑risk entry point for a short‑to‑medium‑term long position, targeting the resistance level. Keep an eye on the upcoming earnings release and any guidance on dividend or buy‑back announcements—those catalysts can trigger a breakout. Conversely, if the EPS improvement is perceived as temporary (e.g., commodity‑price driven), a quick profit‑taking rally could be expected, so a tight stop just below the 20‑day MA is prudent.