Monday, May 15, 2017

Analysis of BASF 2017


Logo of BASF 2017

Company: BASF

ISIN DE000BASF111 | WKN BASF11

Business: A German chemistry and polymer company. They are still active with five different business units and those are: Chemicals (with intermediates and polymers), Performance Products (pigments, care chemicals, health chemicals and paper chemicals), Functional Materials & Solutions (catalysts, construction chemicals and coatings), Agricultural Solutions (crop protection) and finally Oil & Gas (exploration and extraction).

Active: World wide and as they say themselves "in almost every country in the world". 

P/E: 20.3

For the previous analysis please see analysis of BASF 2016.


Contrarian analysis of BASF 2017


The P/E of BASF is far too high for me with 20.3 and the P/B is a little bit on the high side with 2.6 which gives a clear no go from Graham. Earnings to sales are reasonable at 7% but the ROE is a bit too low with only 12.8%. The book to debt ratio ends up at 0.7 which is ok.
In the last five years they have had an extremely poor revenue development with yearly -6% which is truly awful and this then gives us a motivated P/E of between 8 to 10 which means that BASF today is highly overvalued by the market.
They spend a nice chunk of money on R&D and I know for a fact that it is keeping them ahead of competitors so it is indeed worth those 45%.
They pay a decent dividend in the size of 3.4% which unfortunately correspond to almost 70% of their earnings which means that they better start bringing home some more money and soon!

Conclusion: Graham says no to BASF due to the high P/E, P/B and the poor ROE as well as the high percentage of paid out dividend. I own BASF today and I am more forgiving. They are indeed up at a high P/E and I would not buy them but they are not crazy high which would make it worth my while to sell them and they additionally have less than "common" earnings which leads to an inflated P/E value. I will remain as a shareholder in BASF.

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