Company Reports

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major category. The firm maintains a top-three market position in over two thirds of its businesses. Its products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. The catalysts business generated around 17% of companywide revenue in 2023, while agriculture generated roughly 15%. The remaining 11 business lines accounted for roughly 10% or less.

Following inventory destocking that weighed heavily on 2023 profits, BASF reported solid results for the first quarter of 2024. Volume excluding metals trading rose 2% versus the prior-year quarter, a much-improved result versus the 12% volume decline for full-year 2023. The results were in line with our view that BASF will see a profit rebound in 2024 as slightly higher volume allows the company to run its plants at a higher capacity utilization, taking advantage of the Verbund process (the physical integration of production, market platforms, and technologies that tie the businesses together) that underpins our narrow moat rating based on a cost advantage.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major category. The firm maintains a top-three market position in over two thirds of its businesses. Its products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. The catalysts business generated around 17% of companywide revenue in 2023, while agriculture generated roughly 15%. The remaining 11 business lines accounted for roughly 10% or less.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in over two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. The catalysts business generated around 17% of companywide revenue in 2023, while agriculture generated roughly 15%. The remaining 11 business lines accounted for roughly 10% or less.

BASF's fourth-quarter results show the continued challenge of weak chemicals demand due to customer inventory destocking, as adjusted operating profits fell nearly 22% versus the prior-year quarter. However, during the quarter, volumes were down less than 1% year over year and segment operating profits grew in all businesses except chemicals and agricultural solutions. This shows that demand is returning, which is in line with our thesis that BASF's profits will improve in 2024. After our initial earnings review, we're maintaining our EUR 62 ($16) fair value estimate. Our narrow moat rating is also unchanged.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about 20%-25% of annual revenue, and the remaining 12 business lines each account for roughly 10% or less.

Narrow-moat BASF posted third-quarter results that reflect continued challenges from a sluggish global macroeconomic environment, as demand across end markets and geographies remains suppressed. Total sales declined 28% year over year and 9% sequentially, while firmwide EBITDA margin contracted 160 and 240 basis points over the same periods, respectively. Repressed volume demand and unfavorable pricing dynamics were key hindrances this quarter, exacerbated by unplanned downtime for two crackers in September.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about 20%-25% of annual revenue, and the remaining 12 business lines each account for roughly 10% or less.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about 20%-25% of annual revenue, and the remaining 12 business lines each account for roughly 10% or less.

BASF’s second-quarter results reflected depressed demand across end markets with total revenue declining 25% year over year and 13% sequentially. The firmwide adjusted EBITDA margin contracted to 6% due to reduced product pricing and lower fixed cost absorption, which we expect will continue to weigh on profitability through year-end. Management indicated customer inventories of commodity chemicals have depleted enough to spur modest demand recovery in the second half, but demand for more specialized products (such as consumer goods) will likely remain depressed through year-end. We’ll incorporate the firm’s full financial and operating results shortly, but after this first look, we maintain our narrow moat rating and EUR 65 ($18) fair value estimate.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about one quarter of annual revenue, and the remaining 12 business lines each account for 10% or less.

BASF’s first-quarter results reflected low demand across nearly all its end markets worldwide, reflecting an overall challenging global macroeconomic backdrop. First-quarter revenue came in just shy of EUR 20 billion, a 13% year-over-year decrease mostly driven by reduced sales volumes. The prevailing operating environment also contributed to a nearly EUR 1 billion year-over-year decline in the firmwide operating profits, yielding a 9.6% operating margin for the quarter. We’ll incorporate the firm’s full financial results shortly, but after this first look, we maintain our narrow moat rating and fair value estimate of EUR 65 ($17).

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about one quarter of annual revenue, and the remaining 12 business lines each account for 10% or less.

BASF posted a decent fiscal 2022, as the firm grappled with myriad macroeconomic headwinds including input cost inflation and reduced product demand around the world. Though some of the current market dynamics will likely persist in 2023, we expect much of these challenges will abate in the long run, especially as BASF makes headway on several initiatives targeting operational efficiency gains. We’re therefore raising our fair value estimate to EUR 65 ($17) from EUR 59 ($15), mostly due to our improved outlook for the firm’s profitability over the next five years. We maintain our narrow moat rating and stable moat trend following results.

The energy crisis in Europe and its associated impact on the economy has caused the European chemical sector to trade off hard this year. Indeed, the European chemical companies under our coverage are down 21% compared with down 10% for the Morningstar Europe Index. While nearly all the European chemical stocks we cover are showing negative returns this year, we favor the more cyclical companies for investors at this point, particularly the German ones, as their position in the epicenter of energy and recession concerns has resulted in their trading at deeply discounted levels. We don't think gas rationing in Germany is likely this winter, but we model a recession in Europe and a global slowdown in 2023 with below-consensus estimates. Despite this relatively pessimistic view, BASF (narrow moat), Covestro (no moat), Evonik (no moat), and Lanxess (no moat) are all trading at 4- and 5-star levels. Lanxess is our preferred stock of the bunch, given its bargain-basement valuation (0.52 price/fair value estimate), manageable exposure to a gas shortage, and multiple avenues for investors to win (for example, rerating after its transformation into a full specialty chemical company and its potential lithium joint venture with Standard Lithium) other than just waiting for a cyclical recovery.

We’re transferring coverage of BASF. After taking a fresh look at the firm, we’re slightly lowering our fair value estimate to EUR 59 ($15) from EUR 62 ($16). Our narrow moat and stable moat trend ratings are unchanged. We maintain our Medium Morningstar Uncertainty Rating and Standard capital allocation rating.

BASF is the world’s largest chemical company, producing commodity and specialty chemicals in nearly every major chemical category. The firm maintains a top-three market position in more than two thirds of its businesses. The company’s products are sold to a wide variety of end markets ranging from industrials to transportation to pharmaceuticals to agriculture. Its catalysts business represents about one quarter of annual revenue, and the remaining 12 business lines each account for 10% or less.

Narrow-moat BASF reported third-quarter EBIT of EUR 1.3 billion, down 28% versus the prior-year period, but matching the numbers disclosed on Oct. 12. Guidance for 2022 EBIT of EUR 6.8 billion-EUR 7.2 billion was unchanged although the company noted that economic activity declined more significantly than expected in the third quarter. We don’t expect to make a material change to our EUR 62 ($16) fair value estimate. At current levels, the shares look undervalued.

Narrow-moat BASF released certain quarterly numbers and announced a EUR 500 million cost-saving program. The profit warning affects net income, as it is due to noncash impairments on the company's shareholding in Wintershall Dea in the amount of EUR 740 million. This is due to a partial write-down of Wintershall’s participation in the company that operates the Nord Stream 1 pipeline. BASF’s sales (EUR 21.9 billion) and EBIT (EUR 1.3 billion) were actually quite close to the Vara consensus, so we don’t expect a big market reaction. Indeed, the shares were up 2% intraday. We also don’t expect to make any material changes to our forecast or EUR 62/$16 fair value estimate. At current levels, the shares look undervalued.

Narrow-moat BASF reported second-quarter EBIT of EUR 2.3 billion, flat over the prior year and in line with prereleased figures released on July 12. With continued strong results, BASF lifted the bottom end of its 2022 EBIT guidance range, now expecting EUR 6.8 billion-EUR 7.2 billion versus EUR 6.6 billion-EUR 7.2 billion previously. Using the midpoint of the new range, BASF has already achieved roughly 75% of it’s expected EBIT for the full year in the first half. Hence, a material slowdown is expected in the second half. We have lifted our 2022 estimates, but this was offset by reductions beyond 2022 given the increasingly gloomy outlook for the global economy, particularly Europe. Consequently, we have trimmed our fair value estimate to EUR 62 ($16) from EUR 66 ($17.50). Despite the modest cut to fair value, shares continue to look significantly undervalued.