Our Long-Term Outlook for BASF Remains Solid

BASF BAS posted a decent fiscal 2022 as it 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 per hare 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 and stable moat trend ratings following results.

Total 2022 revenue grew 11% year over year, mostly due to a very strong first half—nearly 80% of the increase was generated in the first two quarters. Muted demand stemming from adverse weather conditions in North America, the zero-COVID policy in China, and fallout from the Russia-Ukraine conflict in Europe (among other factors) offset improvements in automotive production and agricultural production during the year. Quite a bit of uncertainty remains around several of BASF’s end markets in 2023—it’s unclear when exactly Chinese demand will normalize, for example—but we’re cautiously optimistic about the firm’s prospects moving forward. We therefore expect 2023 revenue will dip slightly in 2023 but will average growth of about 3.5% per year thereafter.