BASF is back on track

In its company history spanning more than 150 years, BASF has seen a number of global crises. The chemical company, which was founded in 1865 as the Badische Anilin- & Sofa-Fabrik, has put this away in an impressive way in many cases and has emerged from them stronger in some cases. The latest business figures of the Dax Group now also show how quickly BASF is leaving the global corona pandemic behind.

In the second quarter of 2021, a trend that could already be observed at the end of 2020 continued. As a chemical company and raw material manufacturer, BASF is one of the so-called early cycle companies. These are companies that benefit in a special way from the early phase in an economic cycle – as is currently the case. Because at the beginning of the year, the global economy recovered more from the corona-related economic dip than expected.

Strong start to the year

This is also reflected in the most recent preliminary key figures of the traditional Dax group. After a strong start to the year, a strong June quarter followed for BASF. Group-wide sales were 19.75 billion euros – an increase of 55.8 percent compared to the previous year, which was characterized by Corona.

Our author Christoph Scherbaum is a stock exchange specialist and works as a financial journalist from Ludwigsburg.

Photo: Private

BASF benefited from higher prices and sales volumes. However, currency effects had a negative impact. Overall, however, the average expectations of the analysts for the proceeds of 17.16 billion euros were clearly beaten. This was also evident on the results page. Earnings before interest, taxes (EBIT) and before special items rose from just 226 million euros in the previous year to 2.36 billion euros. In this case too, market expectations were exceeded.

Record sales within reach

The positive development is likely to continue, according to the corporate management, and accordingly higher annual targets have recently been announced for the second time: The sales forecast has been increased from 68 to 71 billion euros to 74 and 77 billion euros, while the target range for EBIT before special items is from 5.0 to 5.8 billion euros was raised to 7.0 to 7.5 billion euros. With the increase in the forecast, BASF is not only aiming for a significant increase compared to the pre-crisis level, but could even record the highest sales in the company’s history in the end.

In the medium to long term, BASF would like to secure its profit with the help of an even stronger concentration on the Asian market (especially China) and with megatrends such as battery production. BASF management assumes that China’s share of the global chemical market will increase from currently over 40 percent to almost 50 percent by 2030.

Sluggish share price development – but strong dividend

BASF shareholders should see the current development with pleasure, because they have only been able to make limited returns on the Group’s shares in recent years. While BASF continues to be one of the high-dividend stocks and currently offers a dividend yield of 5.1 percent (based on the 2020 closing price of EUR 64.72), the share price development has been quite disappointing – although it is now increasingly becoming apparent that the Dax Title could soon pick up on its old heyday.

Because after the paper collapsed between January 2018 (record high at 98.80 euros) and March 2020 by a peak of 62 percent to 37.40 euros, the price temporarily fell back to just above the 67 mark by mid-July of this year work upwards.

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To the detailed view

The BASF share is now trading above the 200-day line again, which means the overall upward trend. If the breakout above the previous 2021 year high from April at 72.90 euros and the 2019 top at 74.60 euros succeeds, the railway would be chart-technically free up to the 2018 all-time high at 98.80 euros. In the long term, too, there are good chances for prices to continue to rise.

Anyone who has been a BASF shareholder for many years has been able to invest his money solidly. Over the past 30 years, for example, the BASF share price has risen by an average of 8 percent annually, making the share as good as the Dax (+8 percent annually). A one-off BASF investment of EUR 1,000 in July 1991 would have resulted in a depot position value of around EUR 10,060 to date. But one should also be fair for once and look back on the last decade: whoever invested 10,000 euros in BASF ten years ago has just under 11,000 euros in their depot today. This means that the BASF share barely increased during this time, while the Dax or the European industry index Stoxx 600 Chemie, for example, more than doubled.

Most of the analysis houses recommend buying

The fact that business is going better again could, however, fuel the course again. According to data from Vara Research, 52 percent of the analysis houses currently recommend buying the shares, 40 percent recommend a hold position and only 8 percent recommend selling BASF shares. The average price target is 81 euros.

It should also be exciting for BASF shareholders with regard to the majority stake in Wintershall Dea. This is in focus not only because of its financial participation in the criticized Baltic Sea gas pipeline Nord Stream 2, but also because of its planned IPO, which was already planned in the second half of 2020. Analyst Peter Spengler from DZ Bank recently wrote that the IPO of Wintershall Dea could be a positive impetus for the BASF share price – BASF shareholders would probably welcome that.



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