BASF shares down as Q3 net profit falls, warns of growing challenges

LONDON (ICIS)–Shares in BASF fell on Friday after the German chemical major published falling net profit for the third-quarter and warnings of “growing” macroeconomic challenges.

BASF shares trading at €64.86 as of 09:50am UK time, a 2.70% decline, compared to the previous day’s close.

BASF’s third-quarter net profit declined 10% year on year, partly weighed down by the adverse impact of low water levels on the River Rhine on its operations, the producer said.

In the same period last year, BASF generated special income in the performance products segment from the transfer of its leather chemicals business to the Stahl group.

Chemical equity analysts at London-based Bernstein Research said however that strong pricing in chemicals had led to the company beating consensus on sales by 5%.

However, earnings before interest and tax (EBIT) missed targets in every division, by 3% overall.

€ million	Q3 2018	Q3 2017	Change (%)
Revenue	15,606	14,516	7.5
Operating profit before special items	1,470	1,702	-13.6
Net profit	1,200	1,336	-10.2
€ million	Jan-Sept 2018	Jan-Sept 2017	Change (%)
Revenue	47,089	45,992	2.4
Operating profit before special items	5,723	6,120	-6.5
Net profit	4,359	4,541	-4.0

“EBIT margins declined as isocyanate and cracker margins rolled over, which were all expected,” analysts at Bernstein said.

“Higher fixed costs incurred for maintenance and shutdowns, lower water levels on the Rhine and raw materials increasing drove the miss.”

Analysts at Germany’s Baader Bank said BASF is to put its construction chemicals unit “on the block”, meaning it is open to selling it or merging with another company.

The bank said this would be the right decision as the division has stagnated since its purchase from Degussa (now Evonik) in 2006, with EBIT still at the same level as it was then.

“If Sika would be the merger partner, we would see the highest synergy potential (up to €200m additional EBITDA [earnings before interest, taxes, depreciation and amortisation]/EBIT),” said the bank.

“However, we think also LafargeHolcim and GCP are interested.”

BASF revised down it’s growth forecast for global chemical production to 3.1%, from 3.4% previously.

The company now expects 2018 operating profit before special items to fall slightly, with a considerable decline in operating profit, following the signing of a deal to merge the company’s oil and gas business Wintershall, with DEA, which is owned by LetterOne.

Baader Bank said that BASF maintaining its guidance for the year was a “risk”, arguing the company is likely to be impacted by lower automotive demand and further negative effects from the low Rhine water levels.

Baader reiterated its ‘Sell’ rating for BASF, forecasting a negative reaction from investors to the third-quarter financials.

On Friday, BASF’s CEO Martin Brudermuller s said: “The challenges in the macroeconomic environment are growing.

“Throughout the entire third quarter, we had to struggle with [low Rhine water levels], which led to production cutbacks and higher transportation costs.”

Water levels in the key petrochemicals transport route in northwest Europe have not improved into the fourth quarter, potentially causing another hit to BASF’s financials in the fourth quarter.

(Updates re-leads and adds detail throughout)

Pictured: BASF flagship site in Ludwigshafen, archive image
Source: Caroline Kreutzer/imageBROKER/REX/Shutterstock