BASF Stock - Investor Update for 2024 with DIVIDEND CUT

Summary

In this video, the host revisits their analysis of BASF, the world’s largest chemical producer. They discuss a recent strategy update after expressing concerns about the company's stagnant revenue and fluctuating cash flow over the years. Despite some positive developments like a projected 10-12 billion EBITDA target for 2028 and planned cost reductions, the company still faces challenges, including likely dividend cuts. While the new leadership's focus on growth markets, particularly in Asia, could offer potential, the host remains unconvinced, preferring to invest in more consistently profitable companies.

Takeaways

• 📉 BSF has struggled in recent years, with poor performance and minimal revenue growth.
• 🌍 BSF is the world’s largest producer of chemical products, with a market cap of 43 billion euros and a 7% dividend yield.
• 📊 BSF's revenue saw significant jumps in 2021 and 2022 but declined again in 2023, with net income fluctuating over time.
• 🚫 The company has not seen consistent free cash flow or income growth, and its performance has been lackluster overall.
• 📉 BSF's dividend growth has been minimal, with only slight increases over the years, and a potential dividend cut is expected in the near future.
• 👨‍💼 BSF has appointed a new CEO, Markus Kemet, who aims to foster a winning culture and value creation.
• 🔄 The company is focusing on restructuring, potentially considering an IPO for its agriculture solutions business and divesting from its battery materials sector.
• 🌏 BSF plans to concentrate more on Asia, with significant investment in China, where they expect major market growth.
• 💸 BSF aims to achieve 10-12 billion euros in EBITDA by 2028 and generate a cumulative free cash flow of 12 billion euros from 2025 to 2028.
• 🔄 The company plans to reduce capex and implement share buybacks from 2027 onwards, but concerns remain about its ability to achieve these goals given its past performance.

Q & A

What is BSF, and what does it do?

BSF (likely referring to BASF) is the world's largest producer of chemical products, with a market capitalization of €43 billion and a dividend yield of 7%. It produces a wide range of chemicals used across various industries.

Why has BSF been struggling in recent years?

BSF has faced difficulties due to stagnant revenue growth, fluctuating net income, inconsistent free cash flow, and high debt levels. These issues have affected its performance, causing the company to underperform compared to its potential.

How has BSF's revenue changed over the years?

BSF's revenue remained relatively flat for a long time, with jumps in 2021 and 2022, followed by a decline in 2023. Despite these fluctuations, the long-term growth of the company has been minimal.

What challenges does BSF face with dividend growth?

BSF's dividend growth has been weak, with minor increases over the years. For instance, since 2010, dividend growth has been slow, with small increments of only 10 cents at a time, indicating limited growth potential.

What are BSF's goals with the new strategy keynote?

BSF aims to achieve between €10 and €12 billion in EBITDA by 2028, with a cumulative free cash flow of over €12 billion from 2025 to 2028 and a return on capital employed of around 10%. They also plan to maintain an annual dividend of at least €2.25 per share.

What changes are expected in BSF's dividend policy?

There is a strong possibility that BSF will cut its dividend to around €2.25 per share. This change reflects the company's restructuring efforts and its focus on stabilizing its financials while addressing poor performance.

How does BSF plan to restructure its business?

BSF plans to focus on its core businesses and may consider spinning off or IPO-ing certain divisions, such as its agriculture solutions or battery materials segments, to streamline operations and concentrate on areas of growth.

Why is BSF focusing on Asia for future growth?

BSF sees over 80% of global economic growth coming from advanced countries, particularly in Asia. The company has made significant investments in the region, such as its €10 billion facility in Zhanjiang, China, to capitalize on this growth.

What is BSF's plan for improving free cash flow?

BSF aims to improve free cash flow by reducing capital expenditures (capex) and focusing on more efficient operations. The company expects to see growth in free cash flow starting in 2026, following these changes.

Why does the speaker remain unconvinced by BSF's strategy update?

The speaker is skeptical because of BSF's history of poor performance, minimal revenue growth, inconsistent free cash flow, and dividend issues. The speaker prefers to invest in a well-performing company rather than waiting for BSF to turn things around.