SRH AlsterResearch AG: BASF - almost like the bund, but with a real yield

Initiation of coverage with BUY recommendation and 44% upside

Hamburg (pta010/08.10.2021/09:34 UTC+2)

Offering 45,000 products to a well-diversified base of c. 90,000 customers across sectors and countries, it is hard not to see BASF as a proxy for GDP. However, through portfolio adjustments over the last 10 years, BASF has reduced exposure to commoditized and cyclical businesses by about 1/3 of sales, divesting for example oil & gas, construction chemicals and paper chemicals. At the same time, selective acquisitions have supplemented the business with more innovative and differentiated products, for example in personal care, crop protection and battery materials. While no single transaction was large enough to meaningfully move the needle at the world’s largest chemicals company, together they have added almost EUR 9bn of less cyclical, emerging sales.

After a FY2021 that is characterized by post-Covid catch-up effects on volumes and prices, business should revert to normal in 2022 and growth from there on should reflect GDP growth, plus a kicker for the exposure to the new innovation-driven units. BASF has been consistently profitable over the last 20 years (2020 was in the red only due to special items) and has rewarded investors with a stable or growing dividend since 2001. A dividend yield in excess of 5% looks mouth-watering in times of negative nominal yields for safe assets like the bund. 

Margins in the short term could suffer from inflated feedstock prices (especially natural gas), but any pressure should be transient until passed along to customers with a time lag. Weakness in the share price thus provides a good buying opportunity, in the view of AlsterResearch. Based on a DCF model and supported by FCF yield, AlsterResearch recommends to BUY with a PT of EUR 91.00. For full details, please visit the ResearchHub.

About AlsterResearch: AlsterResearch is an independent equity research house, providing MiFID II-compliant research on more than 50 German stocks. The research is available on the digital research platform ResearchHub or via an EMail subscription free of charge or obligations. AlsterResearch also regularly hosts roadshows, roundtables and conferences with key people in interesting companies, registration is open.

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