BASF stock shoots up on ‘stunning’ 2017 results, base chems the star of the show

Source: ICIS News

2018/01/19

(Clarification: Recasts share price in second paragraph)

LONDON (ICIS)--BASF shares were up more than 2% in Friday’s afternoon trading after the German chemical major published ahead-of-consensus financial results for 2017, with analysts describing the figures as “stunning”.

At €98.47 a piece, BASF’s shares were trading 2.40% higher on Friday.

Compared to the close on 17 January – before preliminary results were published – at €93.58, shares have risen more than 5%.

The company’s 2017 net income shot up 49% to €6.1bn on the back of a strong performance  on monomers, petrochemicals and intermediates, while earnings before interest and taxes (EBIT) before special items came in 32% higher than in 2016 at €8.3bn.

Sales for the year reached €64.5bn, up 12% compared to 2016.

All figures exceeded what chemical equity analysts expected for BASF, with some of them showing surprise that the traditionally-slower fourth quarter had represented for the company the icing on the cake during 2017.

“A number of factors kick-started the business in 2017: inflation came back into chemical prices as the crude oil price slowly but surely climbed to new highs,” said to ICIS Oliver Schwarz, analyst at Germany’s Warburg Research

“In base chemicals, because price negotiations are rather frequent, which enables you to pass on any increase in raw materials increase prices. Demand was also very good, especially in some product ranges like polyurethanes [PU], so the company could slap on some additional margins there as well.”

He added that BASF reporting an EBIT of €8.3bn (consensus €8bn) is substantial “as it happened in the fourth quarter, which is normally weak" due to seasonality.

Markus Mayer, an analyst at German investment bank Baader Bank, provided preliminary Q4 figures, sourced from company data, Vara Research and Baader Helvea Equity Research, which noted that sales in the fourth quarter came in at €17.0bn, 11.7% above expectations (€15.2bn).

Mayer said the reasons for the positive deviation came from “stronger than expected demand with very high fly-up margins at chemicals; the improving gas and oil prices, and a stronger-than-expected agrochem demand in Latin America.”

Breaking the figures down by division, Mayer said that higher volumes and margins in the monomers, petrochemicals and intermediates division were the main contributing factors behind the strong earnings increase in the chemicals segment.

Warburg Research's Oliver Schwarz concluded: "For me, the biggest surprise was the agrochemicals business. In the January-September period, there was a gap of 18% between 2016 and 2017 EBIT performance, but in the fourth quarter that gap was almost closed, and in a quarter that’s normally seasonally very weak [for agro].

"The company told me they had had some improvement in its product mix, and on the other they said they had followed their new strategy to sell wholesale at a later stage, closer to when the application does start. Therefore, numbers, especially in the third quarter, were much lower than 2016, they shipped lower volumes to wholesale, and in 2017 they only started that process in the fourth quarter."

Pictured: BASF's cracker at Ludwigshafen Source: BASF

Focus article by Niall Swan

Additional reporting by Tom Brown and Jonathan Lopez