BASF Surprises Analysts, Roils Peers With Magnitude of Warning

Veronika Gulyas

09 Jul 2019, 06:06 PM IST

(Bloomberg) -- The severity of BASF’s forecast cut surprised analysts and shook chemicals peers across Europe and the U.S. Auto stocks also fell, as the chemical maker cited car weakness and U.S.-China trade among reasons for its guidance reduction. The stock was downgraded at JPMorgan, while several other analysts slashed price targets.

Shares dropped as much as 6.5%, the most in two months, while the Stoxx 600 Chemicals Index slumped 2.3%. Covestro, Lanxess, Solvay and Umicore all fell more than 4%. BASF said 2019 earnings before interest, taxes and special items could be 30% lower versus 2018 levels, a cut that was much bigger than many analysts had expected.

“The significance of the 2Q 2019 consensus miss and the guidance cut might be a very negative surprise for many market participants and should lead to share price drop at BASF and most other chemical stocks,” Baader analyst Markus Mayer wrote in a note today.

BASF Surprises Analysts, Roils Peers With Magnitude of Warning

Here’s what analysts are saying about BASF’s outlook downgrade:

Deutsche Bank, Tim Jones (buy)

An “expected” profit warning but magnitude a step higher than expected
Analyst cuts view for 2019 Ebit to a 21% expected decline from 11%, with weakness mainly in the chemicals, materials and agriculture units
Cuts target price to EU74 from EU80

Baader, Markus Mayer (hold)

Expects negative reactions for Arkema, Covestro, EMS-Chemie, Laxness, Bayer, Umicore and Johnson Matthey in particular, but also at Akzo Nobel, Brenntag, Clariant, DSM and Evonik
- Considers share drops for Brenntag, Clariant, DSM and Evonik as unjustified

Morgan Stanley, Charles L Webb (equalweight)

Magnitude of forecast cut was greater than anticipated
Expects investors to question FY2020 Ebit expectations, as well as status of balance sheet given co.’s commitment to stable and rising dividend

Jefferies, Laurence Alexander (hold)

Would not be surprised if company reprises “visibility is pitch black” theme on 2Q earnings update
Also cites the magnitude of the earnings downgrade as key, not the cut itself, noting peer commentary made an earnings outlook change unsurprising
Cuts price target to EUR62 from EUR69

Citi, Thomas P Wrigglesworth (buy)

Both size and longevity of the demand shock is way beyond broker’s initial estimates; says there’s likely an element of “kitchen sinking” this year
Notes higher one-time costs highlight restructuring plan is accelerating
Says question is if capex will be cut; “for now,” lower earnings will affect short-term cash-flows and Citi’s valuation
Cuts price target to EU75