BASF: Low Valuation In Inflationary Environment

BASF: Low Valuation In Inflationary Environment


BASF is a global chemical company and a reliable dividend payer and grower for decades.

Increased commodity prices impact their business and put pressure on margins.

In this article, I assess their recent performance, outlook and current valuation.

To determine if the company could be a good investment right now.

Philiphotographer/iStock Unreleased via Getty Images A good friend of mine recently asked me about my opinion on BASF ( OTCQX:BASFY ) ( OTCQX:BFFAF ) and whether the company is investable right now. He has invested in common shares of several other European Large-cap companies but is not a very active or passionate investor himself. Since I also own shares in BASF and have not taken a closer look myself for some time, I decided to do a deep dive and also share my insights in an article.

I currently own 45 shares in BASF and with a current share price of around € 62 my current position is worth almost € 2,800. My average purchasing price is around € 75 (built up in several purchases throughout 2017-2019), so I am considering if it makes sense to further expand my holding and also average down my purchasing price. Recap: my investment strategy and goal

Let me first recap my personal investment strategy and goal, to help you better understand my perspective. My goal is to reach financial independence years before my official retirement age of 67 (or perhaps even 70 or later by then). This independence is achieved when my annual dividend income equals or exceeds my annual cost of living. At that moment I become completely independent from the income from my full-time job. Maybe I am still happily working in a full-time job and continue working, but maybe I decide to quit and find a different meaning for the remainder of my life. Achieving this goal of financial independence seems very realistic and from the back of the envelope calculations, I can achieve it within the next 10-15 years.

All my investment decisions are made with this ultimate goal in mind. This means that whenever I have money to invest (my monthly addition to my investment account or re-investing dividend), I assess how it brings me closer to reach this goal. This means that I look at the dividend that I expect the investment to generate immediately, but also 10 – 15 years into the future. This means that I always try to balance between a reasonable entry yield and expected dividend growth. I also only invest in undervalued or fairly valued high-quality companies and intend to hold them for decades. Safety of principal and foremost reliability of the dividend are extremely important to me. What does BASF do?

Let me start with a brief explanation of what BASF does. It is a global chemical company founded in 1865 and currently headquartered in Ludwigshafen (Germany). The market cap is € 57B and they have over 110,000 employees worldwide.

As you can see the company has 6 main business segments that offer a wide range of products for various industries. The product portfolio is well diversified across these 6 segments. Every segment is also profitable and they have a clear path forward through innovation to remain relevant & profitable. Source: BASF Capital Markets Story presentation

Their customers are all over the globe and they prefer to operate their business in the regions where their customers are. The company is also confident in its ability to deliver long-term value, as illustrated in the following slide from their investor story presentation. Source: BASF Capital Markets Story presentation

In the rest of this article, I take a closer look and share with you the reasons I found to like and less like BASF as a company and potential investment. Reasons to like BASF

Strong Q3 2021 performance

BASF published their Q3 2021 results on the 27th of October. As you can see below they presented continued strong performance. Source: BASF Q3 2021 results investor presentation

Compared to Q3 2020 EBIT before special items increased to € 1.9B, which is +221% compared to Q3 2020 and +77% compared to Q3 2019. Source: BASF Q3 2021 results investor presentation

Taking all first three quarters of 2021 together, results also look very strong Revenue increased to € 58.8B (+36% versus 2020) and adjusted EPS increased to € 5.59 (+165% versus 2020). Obviously, 2020 was distorted by COVID-19 and it is important to look at the pre-COVID-19 situation. In FY2019 revenue was € 59B and adjusted EPS of € 4,00. This […]

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