COMPANY COMMENT: Sasol; Emira Property Fund

DIVERSIFIED global oil and chemical company Sasol has recovered just more than 9% so far this year after falling 36% last year on plummeting oil prices. The support for the share has been based mainly on perceived undervalue. But on Thursday it tumbled again, wiping out investors’ gains so far this year. Buyers clearly rushed into Sasol too early.

The proof in the pudding was always going to be Sasol’s interim results, set to be released on March 9. Earnings forecasts have been downgraded to an essentially flat performance for the first half. The question remains how dividends will be affected if earnings shrink.

Investors received their answer on Wednesday in Sasol’s announcement that it is revising its dividend policy. Not giving too much away, the group intimated that revised dividend payouts would be in the range of those between 2008 and 2014.

The former was a bad year for Sasol, with oil prices dropping to below $40 a barrel and causing Sasol’s earnings to fall 50%. The possibility of a repeat in the March results sent shivers through the market, with the share price dropping more than 10% at one stage.

Investors always react negatively to dividend cuts. Witness Anglo American a few years ago, when it suspended its dividend payout altogether. The wise thing would be to keep dividends stable or at least unchanged, as a much wiser Anglo announced last week in its annual results for 2014.

Emira Property Fund has been listed for a decade, and CEO James Templeton’s strategy is finally gaining momentum. The fund has recorded 9% distribution growth for the six months to December.

This beat market expectations of 8.5% distribution growth.

Considering that Emira had some tough years post-recession, in which it tried to get rid of dud assets such as the World Wear Shopping Centre, it is refreshing to see the fund back on track.

Templeton joined the fund in 2004, having been an equities analyst at Barnard Jacobs Mellet Securities for seven years before that. He took on the role of CEO of Strategic Real Estate Managers, which manages Emira’s assets, and eventually became CEO of the overall fund. A key part of his strategy has been to cut vacancies significantly since 2010.

The fund’s portfolio vacancies were 11.4% at the end of December 2010, 11.3% at the end of 2011, 7.8% at the end of 2012, 5.1% at the end of 2013 and 4.9% at the end of last year. Considering the average property owner’s portfolio vacancy was 11.1% at the end of last year, according to the South African Property Owners Association, the gears are clicking at Emira.

The fund’s unit price has risen 42% since February 18 last year.

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