The Riskiest Investment on the JSE
Just over twenty years ago, in December 2003, investors had the opportunity to purchase shares in a prominent JSE blue chip stock. Saddam Hussein had recently been captured. Earlier that same year, CSI: Miami premiered on M-Net. Rudolf Straeuli stepped down as Springbok coach in disgrace after the Kamp Staaldraad incident and a quarter-final exit from the Rugby World Cup. An original Spur burger was priced at around R25.
Those shares could have been acquired for about R90. Fast-forward two decades, and we’re back at that share price level (having briefly fallen to R30 during the Covid-19 pandemic, only to rebound robustly).
ADVERTISEMENT
CONTINUE READING BELOW
For further reading:
The ‘high dividend’ stocks that look set to disappoint [Oct 2023]
The stock that’s paid 60% of its value in dividends since 2012 [Mar 2024]
This indicates that if you were to buy and hold, as most investment professionals often advise (!), your capital appreciation would be precisely zero. However, you would have received quite a few substantial dividends during those 21 years, likely exceeding the current share price. Unfortunately, these dividends have not been steady, as the company has oscillated between various crises.
Common Missteps
The company has made many textbook errors that are familiar to numerous other South African corporations, where management teams and boards often believe they are exceptional, world-class leaders. Spoiler: They usually aren’t. The South African market is relatively small, with limited real competition and enjoys several forms of protection (historical, structural, or recent).
For much of the first decade of this century (2005 to 2011), the firm was led by a stable South African CEO, during which it prospered along with the rest of the market.
Even the global financial crisis did not derail the business or its share price.
After his departure, a foreign CEO with a distinguished CV was brought in. Like many corporate decisions seen in our landscape, this one did not end positively. He was succeeded by co-CEOs, another choice that generally tends to work out well for shareholders.
And it wasted billions – actually, hundreds of billions – on substantial international investments in countries where it had minimal to no presence.
Like many JSE-listed giants, it aimed to conquer the globe.
Subsequent investigations confirmed anti-competitive practices across various markets, leading to millions in settlements and fines.
It shouldn’t be difficult to identify the company: Sasol.
Disastrous 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 decisions were made during David Constable’s leadership, and persistent delays with the plants, significant rises in construction costs, and billions in writedowns culminated in his ousting in June 2016.
ADVERTISEMENT:
CONTINUE READING BELOW
Fortunes Gained and Lost
Over the past two decades, shareholders and traders have profited from this stock. Under Pat Davies, for example, who ran the company from 2005 to 2011, the share price more than tripled.
However, substantial losses have also occurred with this stock. If you had purchased shares at the R400 level (not even its peak of over R600) between 2015 and 2019, you’d be feeling the loss now.
If you were daring enough to invest during the depths of the Covid-19 pandemic, when the world seemed to be on the brink, you would have experienced a tenfold gain had you sold above R310 per share (which was nearly any point in 2022).
Further information:
Sasol: Value, or value trap?
Is Sasol cheap yet?
This complexity is what makes Sasol both perplexing and appealing to retail investors.
Private investors directly control 4% of the company, which is a considerable figure. It has offered impressive returns, assuming one is disciplined enough to sell.
If you had simply bought and held on from those years ago, you would be left with that zero return, which is even further diminished by the effects of inflation.
That R90 from December 2003 would equate to R270 today. In other terms, R90 today is comparable to R30 from 2003.
Even some consistently underperforming local unit trusts have outpaced inflation over the past twenty years. Old Mutual’s Investors’ Fund, for instance, would have produced average annual returns of 13% … R100 invested in it in 2003 would now be valued at over R1,200.
Read: These two flagship unit trusts have underperformed CPI over a decade
Stay updated with Moneyweb’s thorough finance and business news on WhatsApp here.