BASF, the world's largest chemical company, is facing challenges in its earnings performance, as noted by UBS's recent analysis.
UBS has downgraded its rating for BASF from "buy" to "neutral" due to skepticism about the company's ability to turn around its performance. This downgrade comes after BASF announced portfolio changes and plans for an IPO of its agricultural division, which UBS believes will take time to yield positive results. UBS analyst Geoff Haire has revised his estimates for BASF's operating profit downward for the years 2024 to 2026, placing them below market consensus.
The downgrade has had an immediate impact on BASF's stock, which fell at the start of the week. Haire has also lowered his target price for BASF shares, reflecting concerns about the company's short-term earnings growth potential.
BASF's struggles are compounded by a challenging global economic landscape, particularly in key markets such as China and the USA. Haire notes that the company is likely to be affected by a weaker global GDP in the coming year. Additionally, low capacity utilization rates and a sluggish agricultural market are expected to weigh on BASF's performance.
In the biopharma sector, Haire anticipates ongoing difficulties, with production facilities operating at less than full capacity. The agricultural sector is also facing challenges, especially due to falling corn prices. BASF's business performance is expected to decline, particularly in the crop protection products sector. The cyclical chemicals sector has not seen the anticipated recovery in volume growth, with downside risks for the automotive sector.
Haire favors shares in consumer chemicals companies and industrial gases producers, while expressing a more pessimistic view on agrochemicals. Despite the challenges, Haire has raised the price targets for other companies in the sector, such as Evonik, LANXESS, and Covestro, rating them as "Neutral." However, he has identified WACKER CHEMIE as a buy.
UBS's "Neutral" rating for BASF suggests that the total return on the shares will be within six percent above or below the market return anticipated by UBS over the next twelve months. BASF's ability to adapt to changing market conditions and implement effective strategies will be crucial in determining its future performance.