Just a little over twenty years ago, in December 2003, investors had the chance to buy shares in a notable JSE blue chip stock. Saddam Hussein had just been captured, and earlier that year, CSI: Miami made its debut on M-Net. Rudolf Straeuli resigned as Springbok coach in shame following the Kamp Staaldraad incident and a quarter-final exit from the Rugby World Cup. At that time, an original Spur burger was priced at about R25.
Those shares could have been purchased for roughly R90. Fast forward two decades, and we’re once again at that share price level (after briefly dipping to R30 during the Covid-19 pandemic but then rebounding strongly).
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This suggests that if you followed the buy-and-hold strategy that many financial experts advocate (!), your capital appreciation would be exactly zero. However, you likely would have received several significant dividends over the past 21 years, likely surpassing the current share price. Unfortunately, these dividends have not been consistent, as the company has faced various crises.
Typical Errors
The company has committed numerous common mistakes familiar to many other South African firms, with management teams and boards often seeing themselves as exceptional, top-tier leaders. Spoiler alert: They often aren’t. The South African market is relatively small, has limited real competition, and enjoys various protective measures (historical, structural, or recent).
Throughout much of the first decade of this century (2005 to 2011), the company was helmed by a stable South African CEO, during which it thrived alongside the broader market.
The global financial crisis had little effect on the business or its share price.
After his departure, a foreign CEO with an impressive CV was appointed. Like many corporate choices seen in our landscape, this one did not conclude favorably. He was replaced by co-CEOs, another decision that typically doesn’t bode well for shareholders.
And it squandered billions – indeed, hundreds of billions – on significant international investments in regions where it had minimal to no footprint.
Like many JSE-listed giants, it sought to expand globally.
Subsequent inquiries revealed anti-competitive practices across multiple markets, resulting in extensive settlements and fines.
It’s not hard to identify the company: Sasol.
Catastrophic investments in a gas-to-liquids plant, an ethane cracker plant, and a chemical plant in Lake Charles, Louisiana, have cost hundreds of billions of rand.
Read: Sasol books R55.1bn writedowns as US business takes hit
These choices were made during David Constable’s tenure, and ongoing delays with the plants, substantial increases in construction costs, and billions in writedowns led to his dismissal in June 2016.
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Gains and Losses
Over the last two decades, shareholders and traders have capitalized on this stock. Under Pat Davies, who led the company from 2005 to 2011, the share price more than tripled.
Conversely, significant losses have also been sustained with this stock. If you invested at the R400 level (not even its peak of over R600) between 2015 and 2019, you would currently be nursing that loss.
If you were bold enough to invest during the depths of the Covid-19 pandemic, when the world appeared to teeter on the edge, you would have experienced a tenfold gain had you sold above R310 per share (which occurred at nearly any point in 2022).
Further reading:
Sasol: Value, or value trap?
Is Sasol cheap yet?
This intricacy is what renders Sasol both bewildering and attractive to retail investors.
Private investors wield direct control over 4% of the company, which is a noteworthy amount. It has yielded impressive returns, provided one is disciplined enough to sell.
However, if you had merely purchased and held since those years ago, you would have faced that zero return, further diminished by inflation’s effects.
That R90 from December 2003 would now equal R270. In other words, R90 today resembles R30 from 2003.
Even some consistently underperforming local unit trusts have surpassed inflation over the last twenty years. Old Mutual’s Investors’ Fund, for example, would have yielded average annual returns of 13% … R100 invested in it in 2003 would now be worth over R1,200.
Read: These two flagship unit trusts have underperformed CPI over a decade
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