Sunday 19 April 2020

Analysis of BASF 2020

Logo of BASF 2018
Company: BASF


Business: A German chemistry and polymer company. They are active with six different business segments and those are: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and finally Agricultural Solutions.

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

P/E: 4.9 (without discontinued P/E of 16.4)

For the previous analysis please see analysis of BASF 2018.

The P/E for BASF is great with 4.9 however if one excludes the discontinued activities then it lands on 16.4 which is border case. However the P/B has improved significantly and is now at 1.0 which indicates that Graham even with the discontinued activities would have been interested in buying BASF.
The earnings to sales are good with 14% but better yet it has significantly increased. The ROE is up at 20% which is great and the book to debt ratio is ok with 0.9.
In the last five years they have had a negative yearly revenue growth rate of -3.4% which comes from divestment and conversion of their business strategy but I would still say that we have a motivated P/E of around 9 which means that BASF is if one excludes the discontinued activities are undervalued by the market and if one includes it in the evaluation then they are overvalued by the market.
They pay a good dividend of 7.2% which then corresponded to 35% of their earnings but it is not sustainable if one accounts for discontinued activites.

Future: The new CEO of BASF that I personally are very pleased with are changing BASF and setting the company up for the long term future. They are leaving the old things behind such as wintershall with oil and gas and are instead embrazing sustainability and recycling. This means a massive loss in revenue but it also brings a more stable revenue flow that is not in the hands of some countries whim. For me their major problem today is how heavily they are connected to the automotive industry. This goes for both their chemical segment as well as for their catalysis business. For my point of view this conversion should probably have started even earlier but BASF - "Big And Slow Factory" will get there with their new focus on the consumer and sustainability.

Conclusion: Graham is actually this time round happy with BASF and so am I. The P/E is acceptable, the P/B is good and even if they end up paying only half the dividends then I would find that reasonable. Their new approach of sustainability is also 100% correct and I recently increased my holding in BASF. I will remain as a shareholder.

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