BofA Upgrades Sasol to Buy on Strong Cash Flow and Oil Outlook

BofA Securities upgraded Sasol Limited (NYSE:SSL) from Neutral to Buy and raised its price target to $16.88 from $12, driven by projected increases in free cash flow and stronger commodity conditions, according to an Investing.com report.

The upgrade reflects growing confidence in the South African energy and chemical company's financial turnaround, supported by improving refining margins and higher oil price assumptions compared to previous consensus expectations.

Projected Free Cash Flow Growth

BofA forecasts an expansion in Sasol's liquidity over the coming fiscal years. Free cash flow is expected to rise to ZAR 33 billion in fiscal 2027 and ZAR 26 billion in fiscal 2028, marking an increase from the ZAR 12 billion projected for fiscal 2026.

"BofA upgraded Sasol Limited to Buy from Neutral and raised its price target to $16.88 from $12," according to the Investing.com report, citing improved free cash flow projections.

This cash generation is expected to support ongoing balance sheet deleveraging and pave the way for a potential resumption of dividend payments to shareholders.

EBITDA Revisions and Market Valuation

Underpinning the upgraded cash flow projections are higher earnings estimates. BofA raised its fiscal 2027 EBITDA estimates by 68% and fiscal 2028 estimates by 21%, citing more favorable assumptions for global oil prices and refining crack spreads.

Despite recent market momentum, the stock continues to trade at an attractive valuation relative to historical levels. Sasol's shares have gained 95% year-to-date, yet the equity still trades at a 35% discount to its long-term 12-month forward enterprise value-to-EBITDA average.

What Drives Refining and Cash Flow Metrics?

Understanding Sasol's sensitivity to refining cracks and crude oil benchmarks is critical for evaluating BofA's revised forecasts. As a major producer of synthetic fuels and chemicals derived from coal and natural gas, Sasol's operating margins expand during periods of global energy demand and elevated refining margins.

The anticipated cash inflows are expected to alleviate debt burdens accumulated during previous capital-intensive projects, providing the company with greater financial flexibility as it navigates shifting macroeconomic conditions in global energy markets.