The single worst investment on the JSE

With the probable exception of Steinhoff …

Little more than two decades ago, in December 2003, you could’ve bought shares in one of the JSE’s blue chip stocks. Saddam Hussein had just been captured. Earlier in the year, CSI: Miami made its debut on M-Net. Rudolf Straeuli resigned as Springbok coach in disgrace following the Kamp Staaldraad fiasco and an exit from the quarter-final round of the Rugby World Cup. An original Spur burger cost around R25.

Shares in this blue chip could’ve been bought for around R90. Fast-forward 21 whole years, and shares are right back at that level (after briefly plunging as low as R30 during the Covid-19 pandemic before rebounding strongly).

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This means that if you buy and hold, as most investment professionals love to tell us (!), your capital appreciation would be exactly zero. Usefully, you’d have received some healthy dividends across those 21 years, easily more than the current share price. But these haven’t been consistent as the company plunged from crisis to crisis.

Textbook mistakes

The company made many of the same textbook mistakes accomplished by so many other South African firms whose management teams and boards have thought they were great, world-class managers. Spoiler: They generally aren’t. The South African market is tiny (by comparison), with little real competition and benefits from a number of protections (historical, structural or recent).

It had a stable South African CEO for much of the first decade of this century (2005 to 2011), during which it boomed, along with the rest of the market.

Even the global financial crisis couldn’t derail the business or its share price.

Following his departure, a foreign CEO with an impressive CV was recruited. Like many of these decisions made by our corporates, this did not end well. He was replaced by co-CEOs, another decision that tends to work out favourably for shareholders.

And it squandered billions – hundreds of billions, in fact – on huge international investments in countries where it had little to no operations.

Like so many listed giants on the JSE, it was going to conquer the world.

Following investigations, it admitted anti-competitive conduct in a number of markets and was forced to pay millions in settlements and fines.

It ought not to be hard to figure out which company this is: Sasol.

The disastrous investments in a gas-to-liquids plant, ethane cracker plant, and chemical plant at Lake Charles in Louisiana cost hundreds of billions of rands.

Read: Sasol books R55.1bn writedowns as US business takes hit

These decisions were made under David Constable, and constant delays with the plants, massive increases in construction costs, and hundreds of billions in writedowns saw his ouster in June 2016.

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Fortunes made and lost

Of course, shareholders and traders have made fortunes on this stock over the last two decades. Under Pat Davies, for instance, who led the group from 2005 to 2011, the share price more than tripled.

Fortunes were also lost on this share. If you had bought at the R400 level (not even its all-time high of over R600) at which it traded for most of the period between 2015 and 2019, you’d be smarting currently.

And if you were brave enough to buy in the depths of the Covid-19 pandemic, when the entire world was ending, you would’ve locked in a ten-bagger if you sold above R310 a share (basically almost any point in 2022).

Read:
Sasol: Value, or value trap?
Is Sasol cheap yet?

That’s what makes Sasol so confounding and so popular with retail investors.

Private investors directly own 4% of the group, which is a not-insignificant number. It has delivered huge returns, if you’re disciplined enough to sell.

If you bought and held all those years ago, you’d be sitting with that zero return, which is actually made worse by the impact of inflation.

That R90 from December 2003 would be worth R270 today. Put differently, R90 today is equivalent to R30 from 2003.

Even some perennially poor-performing local unit trusts have beaten inflation over the last two decades. Old Mutual’s Investors’ Fund would’ve delivered average returns of 13% a year … R100 invested in it in 2003 would be worth over R1 200 today.

Read: These two flagship unit trusts have underperformed CPI over a decade

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