BASF SE (BASFn.DE): Preliminary 2Q adj. EBITDA beats; raised FY outlook in line with consensus, FCF outlook unchanged

Research evidence excerpt

BASF SE (BASFn.DE): Preliminary 2Q adj. EBITDA beats; raised FY outlook in line with consensus, FCF outlook unchanged

Goldman Sachs BASF SE (BASFn.DE)

Investors we speak to are increasingly cautious on BASF shares, despite renewed

tensions in the Middle East, citing peak earnings momentum in 2Q and cyclical

headwinds materializing for the balance of the year. We would not rule out better

margins lasting for longer than anticipated and see BASF in the best position relative to

EU Diversified chemicals to capture that upside, even if we are also cautious on the

volume outlook.

Valuation & risks

Valuation

We are Buy rated on BASF, with a 12-month price target of €57. We value BASF using

9.75x EV/DACF. We derive our multiple by applying a factor of 0.97 to the historical

EV/DACF multiple of 10.0x. The factor is below 1 as our forecast CROCI is lower vs.

history.

Risks

Downside risks to our view and price target include:

n Weaker-than-expected demand in key end markets (automotive, construction,

consumer goods) amid European recession or prolonged German industrial

stagnation.

n Value-destructive M&A if BASF consolidates European chemical assets.

n Chinese chemical producers intensify competition on cost and capacity.

n Chinese monetary and fiscal stimulus fails to support domestic production and

domestic chemical demand.

n BASF’s Zhanjiang ramp is delayed and/or margins at the site remain subdued. This

could lead to a lower-than-expected earnings contribution from the new businesses.

n Inability to pass through feedstock cost inflation compressing margins in upstream

chemicals.

n Agricultural end markets weaken due to farmer economics and/or trade uncertainty.

n Continued structural erosion of European chemical competitiveness due to energy