Friday 27 September 2013

Analysis of BASF

A German chemical company

Company: BASF

Business: A German chemical company. One of the biggest if not the biggest in the world which is why they love their slogan "BASF - The Chemical Company". They have several different business units: Chemicals, Performance Products, Functional Materials & Solutions, Agricultural Solutions & finally Oil & Gas. One could maybe consider oil and gas to be a bit outside their sphere of competence but considering that all the polymers they use in their every day business comes originally from oil they have no other way then to try to secure their raw material by owning their own wells.

Active: They are present all over the world and have globally 380 production sites the biggest one is still in Germany, Ludwigshafen. I have been there myself and to go from one business unit to the next one had to go by taxi.

 P/E: 13.6

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of BASF is not too bad since it is 13.6 but still slightly too much for me but worse is the P/B that is running at 2.6 far, far too much for me and also for Graham since it means that currently the stock is of no interest. The earnings to sales is up at 6% which I thought would be lower due to their quantities but with efficient productions sites they manage to push down the costs. The ROE is great with almost 19%! The book to debt is ok but could have been better since it is at a ratio of 0.7. In the last five years they have had a yearly growth of 4.8% which gives a motivated P/E of 16 to 18 which means that also today the stock is undervalued. To stay ahead BASF is spending almost 36% of their earnings on R&D which is needed to secure future earnings. They pay an acceptable dividend of 3.6% which represents 49% of their earnings which is also ok.

Conclusion: BASF is a little bit too expensive for me today. I also do not like the high P/B value but everything else is excellent! If the stocks of BASF were to drop down slightly and/or that they improve the P/B value then it is very clearly a buy also for me.
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