AlsterResearch Update: BASF - Heathy Q3 results, strong upstream operations

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What’s it all about?

BASF reported good performance in Q3, benefitting from continued robust demand for its products and buoyed by significant price increases. Consequently, management raised its 2021 sales and adjusted EBIT guidance. However, higher raw material costs impacted downstream business margins during the quarter and management expects supply challenges and semiconductor shortage to persist until the middle of 2022. Nevertheless, after a 2021 that is characterised by post COVID-19 catch-up effects on volumes and prices, business should revert to normal in 2022. Margins in the short term could suffer from inflated feedstock prices (especially natural gas), but any pressure should be transient until passed along to customers with a time lag, which BASF appears to be effectively doing. Modest valuations thus provide a good buying opportunity, in our view. Based on a DCF model and supported by FCF yield, we maintain BUY with a PT of EUR 91.00 BUY rating.