UBS cuts BASF's '02 eps estimate, citing Argentina crisis

01 February 2002 22:29  [Source: ICIS news]

TORONTO (CNI)--Analysts at UBS Warburg Friday cut their estimate for BASF’s 2002 earnings/share (eps), citing the company’s exposure to Argentina’s deteriorating economy.

In an analysis released today, UBS said BASF’s Argentine operations likely will be affected by declining demand, the devaluation of the peso, possible price controls, and export taxes on oil and gas companies.

UBS forecasts a 7.6% decline in Argentina’s GDP for this year, which will translate into volume declines in BASF’s Argentine chemicals segments - agrochemicals, coatings and plastics, polymers – and is "likely to wipe out any profits from these products."

Furthermore, bad debts will rise, resulting in write-downs of receivables, UBS warned.

In just completed 2001, agrochemicals are expected to have contributed Euro150m ($170m) to BASF's Argentine sales, coatings and plastics Euro100m, and the oil and gas business Euro300m, according to UBS estimates.

The oil and gas division will be particularly affected by possible price controls and export taxes on oil and gas, UBS noted. However, price controls are "by no means a certainty" while Argentina continues to rely on the International Monetary Fund (IMF) to help with its economic problems, UBS added.

For 2001, Argentina contributed an estimated Euro148m, or 11%, to earnings before interest and tax (Ebit) at BASF’s oil and gas division, UBS said.

In addition to problems in Argentina, UBS predicts that BASF’s business in Brazil will be affected this year by the weakening Real, which will slide by 10% against the US dollar.

However, at this stage Brazil has not been impacted "to any great extend" by Argentina’s economic problems and "we still expect the Brazilian economy to show some growth in 2002," UBS said.

UBS expects BASF to report a 5% year-on-year decline in South American sales for 2001. Those sales in 2000 were at Euro2.5bn, or about 7% of BASF’s group sales, with Argentina and Brazil contributing more than 70% to the South American total.

To reflect the problems in Argentina, UBS downgraded BASF’s 2002 eps forecast by 3%, following a recent 5% cut related to the company’s South America exposure, it said.

Despite the downgrades, UBS maintains a "buy" rating for BASF, saying that the stock has an "attractive valuation multiple" relative to other chemicals companies.

BASF will brief analysts on 2001 and fourth quarter results on 14 March.

By: Stefan Baumgarten
+1 713 525 2653

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