BASF has had a great run with the rally in both the oil price and the Dax

Into numbers we feel it’s right to take some risk off the table

Back on 15.5x earnings we feel the risks in the oil division are more appropriately priced, and ex this area, the stock is trading on a sector multiple again

Guidance will be key to watch; €10-12bn EBITDA was given in October. The oil division comprises 15-20% of Net Income and represents the flex depending on oil price assumptions.

We do not want to take on this risk and lock in a 17.23% gain in just over a month



Monday • 19th January 2015 • 15:47

BASF has been a massive laggard largely due to its oil exposure

Short term material moves downwards in energy markets usually lead to destocking events pressuring volumes (see LXS). However we feel this has been reflected in the downgrades we have seen since the back end of 2014

The impact on the core chemicals division is less clear. It is possible that the pricing/margin dynamic actually improves with falling oil (2009 the only real comparable)

It is a 7% weighting in the DAX. It is the DAX that is being used as a proxy for QE rather than the ESTX as a result of the EUR tailwinds

Momentum is picking up, making the technical picture look more constructive from a short term perspective

At 13x next year and a 25% discount to the sector, these risks are reflected in the price and very well understood by the market. BUY.