Citi slashes BASF target on global economy, euro

28 March 2008 22:33  [Source: ICIS news]

TORONTO (ICIS news)--Citigroup has cut its share price target for BASF by 10% to €90, mainly due to expected lower economic growth in the US and Europe and headwinds from the strong euro, it said on Friday.

 

An unusually uncertain macro-economic outlook, rapid changes in feedstock costs and exchange rates and the re-vamp of BASF's divisional structure had created “significant forecasting challenges” for the company's core chemical business, which accounts for 70% of net income, said Citigroup.

 

Risks had risen considerably in the last six months and the new divisional structure highlighted a greater cyclical downside potential to BASF’s profits should macro-economic headwinds prevail, it added.

 

Citi expected global economic growth of 2.7% in 2008 and 2.6% in 2009, down from 3.9% in 2007, marking the first time since 2003 that growth would be below 3%, it said.

 

Uncertainty over the macro-outlook should prevent outperformance of BASF's shares, the analysts concluded.

 

Still, its strong balance sheet and diversified portfolio would help the company weather economic storms, they said.

 

Also, BASF’s relative under-representation in the weak US economy - around 10% of group net income - was a positive.

 

As for the wave of new petrochemical capacities from the Middle East, set to hit markets from the second half of 2008, Citigroup said some of BASF’s divisions should benefit, at least temporarily, from the lower raw material costs.

 

BASF’s petrochemicals business - about 14% of group sales - would suffer, however.

 

Citigroup also noted BASF’s oil and gas business, which accounts for some 20% of total net income.

 

Success in that part of BASF’s business hinged on the successful development of its new Russian gas production ventures with Gazprom, the analysts said.

 

BASF’s shares were down 1.21%, to €84.89, in Friday trading in Frankfurt.

 

($1 = €0.63)

By: Stefan Baumgarten
+1 713 525 2653

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