BASF beat our as well as street expectations by +11% at the top line, but less at the profitability level (EBIT: +3%).
The recovery story continued with an extra push from China. Here to the effects from extreme weather events and other unpleasant ones (the pandemic) limited availability as exchanges between regions remained somewhat constrained. BASF’s pricing power could be seen in the rise of the profitability lines of the divisions in the early steps of the value chain.
Companies: BASF SE
BASF’s FY were finally stronger at the profitability level than expected by us after the release of some preliminary figures at the end of January. Despite more details, the stronger net working capital outflow seems to foil management’s quite cautious FY guidance. The start into the year might have not been a perfect one due to the weather conditions in some regions (e.g. US).
Santa Claus seems to be dressed in BASF’s colours and bringing strong end-of-year ‘presents’. The earlier steps of the chemicals’ value chain came in above consensus expectations in Q4. This end-year push lifted profitability above the previous quarter’s level, which brought FY EBIT before one-offs closer to FY 2019’s, but above our own guidance.
The reported preliminary figures were above our more cautious expectations and above consensus.
BASF’s official wording for the justification of the impairments taken in Q3 is that they expect continued oversupply of basic chemicals and weaker demand from certain end-customer industries. We find the idea of preparing the company for a BASF 2.0 quite compelling. Nevertheless, Martin Brudermueller still has a long way to go as impairments could be only be a signal. The management could see the pandemic as an opportunity for a fundamental shift.
Unlike Bayer, BASF’s agro-related impairment was not triggered by a write-down on the purchase price, only on the adoption of the production network. We believe the individual share for Surface Technologies, due to former Chemetall, and Chemicals as well Materials (no split provided) will be higher. We take the impairment as a kind of tidying up as the company ‘sells’ as a consequence of the pandemic’s weaker expectation in automotive and aerospace.
One can look at BASF’s figures and see what is going on in the (large volumes) chemicals industry. The drivers at the group level guide to lower volumes, but prices seem to be stable. Looking into divisional performances, the picture becomes less clear as the drivers of early steps (volumes: up; prices: down) of the value chain look different to those of later ones (volumes: down; prices: doing OK). There were no material changes to the preliminary figures.
BASF’s preliminary Q2 figures were characterised by a slightly better than expected operating and earnings performance before one-offs, but were hit by the negative effect from the impairment in the oil & gas business. The latter submerged the preliminary profitability figures to below our expectations. Consensus was also not meet on net earnings.
It looks to us as if BASF plans to change its business model as the company has financed, or plans to do so, some of its stakeholders: shareholders, customers and clients. NWC outflows significantly went up and the plans to cash out ~€3bn as a dividend remain in place. Against the background of the still spreading COVID-19 pandemic and the realistic cancellation of FY 2020 guidance, management’s decisions are puzzling to us.
The Q1 figures were better than expected, beating our expectations an
BASF’s reported figures showed the expected pattern, despite having beaten our quite cautious estimates, whereas consensus was broadly met. However, management manoeuvred the company through a difficult year quite well and was able to deliver its announced portfolio targets. But BASF sees future challenges ahead. Against the backdrop of the looming virus pandemic, management gave quite a cautious guidance but assuming no global spread of Coronavirus. Furthermore, it plans to be more aggressive i
German chancellor, Dr Merkel, had invited all relevant ‘players’, which are directly and indirectly involved in this complex situation. Germany is valued as an ‘honest intermediary’ in this currently-failed country. But Germany has some interest in solving this issue, which are not related to the official ones (e.g. migration to Europe): business.
Having food and feed broadly in common, Agricultural Solutions and Nutrition & Care gave BASF’s Q3 figures a nice push above our expectations and consensus, clearly supported by Surface Technologies. Interestingly, the strong volume decline in the early steps was fully compensated by the higher demand in the later steps – for the first time!
This could have been the first finding after BASF’s recent Investors Day sharing light on the company’s mid- to long-term ambitions of Agricultural Solutions. The latter has been earmarked for above-market growth and higher profitability, helped by innovative products.
Having attended the Investors Day, we obtained some valuable insights and a better understanding of where the momentum is expected to come from: new products and the digital agro platform.
BASF sells the pigments business to DIC for a 1.15x sales multiple, which we see at the lower end of its valuation range.
BASF’s Q2 reporting, or better H2(?), provided further details after the release of the preliminary figures earlier this month, whereas the presentation was not as straightforward as previous ones. We appreciate the greater details (e.g. relevant triggers for the development). All in all, management confirmed our view.
BASF announced that the Q2 figures will be below expectations and lowered FY guidance accordingly. A one-off will cushion the weak operating performance in Q2, but it will not be cash relevant. The development in Chemicals and Materials has worsened and is even far below our already cautious expectations. It remains unclear to us why this was not better managed by the company as consensus still sees EBIT before one-offs at €1,470m (new guidance: ~€1.0bn) in Q2.
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Seeing Machines has announced that it has been appointed by CAE Australia to integrate its precision eye-tracking technology, for an Australian defence industry customer. The engagement is valued at A$1m over five years and comes at the end of a successful direct engagement between Seeing Machines and an Australian defence industry innovation programme delivered over the past two years. This programme exceeded all stakeholder expectations and has opened several additional opportunities across th
Companies: Seeing Machines Limited
XPD increased profit by 40% last year and strong trading has continued through to the end of May. In 2020a growth was largely driven by the Freight Forwarding division. Now management reports that all three divisions – Freight Forwarding, Warehousing & Logistics and Transport Solutions - are growing. As with many logistics businesses, trading at XPD is seasonal with most profit made in H2, hence we have not lifted our estimates at this stage, but with this AGM statement today, risks are clearly
Companies: Xpediator Plc
Despite the challenges presented by Covid-19, TP Group was able to report organic revenue growth of 9% YoY in FY20A, and total revenue up 20% YoY. Aided by strategic acquisitions, non-core business disposals, and investments made within the group, the company should be well placed to benefit as trading conditions normalise. With visibility improving, we release new forecasts for FY21E and FY22E (Adj EBITDA of £4.2m and £5.1m respectively). Given the improving outlook, and a record order book (£6
Companies: TP Group Plc
Tern plc* (TERN.L, 23.75p/£78.5m) | CAP-XX Ltd* (CPX.L, 8.15p/£36.0m) | MTI Wireless Edge Ltd* (MWE.L, 64.5p/£57.1m) | Newmark Security plc* (NWT.L, 1.2p/£5.6m) | Blackbird plc* (BIRD.L, 32.0p/£107.9m)
Companies: TERN CPX MWE NWT BIRD
Staffline’s raise has generated £44m of net proceeds. The debt re-fi simplifies the bank lending and provides ample head-room. The circular points to FY results in line. Staffline has also reported a strong start to the year, with potential upside from Restart. FY 21 FD EPS increased by 57% and FY 22 reduced by 8% to reflect the mechanics of the re-fi and no tax. We expect the conversion rate to continue increasing. The B/S looks sound with expected FY 22 covenant net debt / EBITDA of 3.0x. We h
Companies: Staffline Group plc
We increased our forecasts on 3 June as SThree pre-announced the strength of Q2. Today’s full release shows Q2 NFI +22% y-o-y and H1 NFI +3% on H1 19. The contractor order book is up 33% and productivity +36%. We make no changes to forecasts today, but now expect H1 21 PBT of £27.4m, up 14% on H1 19. Our H2 estimates are cautiously set, reflecting more normalised contractor working hours and selective headcount investment. We see the risks to be on the upside. Maintain Buy.
Companies: SThree plc
Today's news & views, plus announcements from ICP, BATS, OXIG, PAG, NCC, OTMP, XPD, PPC
Companies: BATS OTMP XPD
As midsummer’s day looms (where has this year gone?), there is greater optimism, in general, than may have been anticipated a few months ago. A post-pandemic, ‘vaccine-driven’ recovery demonstrated by increased consumer spending as lockdown measures are lifted has been one of the catalysts. The FTSE 100 has been range-bound in the last month 6,900-7,100. We have seen a combination of broadly positive company results across a range of sectors, further examples of M&A activity and a sequence of ne
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The appointment of an engineering consultancy on the Polish project demonstrates progress. Powerhouse has said that it hopes to complete the project by Q1 2022, in line with development progress in the UK. We see Powerhouse as having considerable international opportunities for the deployment of its DMG technology.
Companies: Powerhouse Energy Group PLC
Last week Metalcraft (part of AVG’s PRSE division) and Sellafield mutually agreed to exercise the option to enter into the second phase of the contract to provide a total of 1,100 high integrity 3M3 stainless steel storage boxes for Sellafield. This is a significant milestone, following commencement in 2015 of prototyping and refinement, and the establishment of dedicated, state of the art 3M3 box production and supply. We think It clear that Metalcraft has now established the leading position i
Companies: Avingtrans plc
Despite an unparalleled disruption caused by Covid-19, Getech grew its subscription-based revenues and the order book remained strong. Despite a drop in revenue driven by Getech's customers reducing short-term project service work and related data sales, gross margins were protected by Getech's cost saving measures. Furthermore, the Services division swung back into operating profit. Following the Company's £6.25m equity raise, Getech is well positioned to grow and diversify its activities acros
Companies: GETECH Group plc
The robustness of the operating model and management's action to support customers and manage the cost base led to Vianet generating positive operating cash flow in FY21A. There is a strong pathway to recovery but the full extent is somewhat caveated on a full reopening profile that is yet to be confirmed. We are forecasting the Group to be free cash flow positive this year and see upside in the price as new order momentum returns.
Companies: Vianet Group plc
Epwin has entered FY21 with positive revenue momentum, having successfully navigated some extreme market conditions in the prior year. The company has built a solid base from which to grow volumes, and a positive cash generation profile provides headroom to invest organically and via acquisition as post-pandemic markets begin to normalise.
Companies: Epwin Group PLC
AVO’s goal is to deliver an affordable and novel PT system, called LIGHT, based on state-of-the-art technology developed originally at the world-renowned CERN. Over the past two years, important technical milestones have significantly derisked the project. Now, AVO is working on the verification and validation phase, prior to LIGHT being used on the first patients to support CE marking. In its recent technical update, the company highlighted progress made over the past three months towards a ful
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN RECI STX SPO SCE TRX VTA
Power reliability and drilling tools specialist Northbridge has confirmed in today’s AGM update that it is “firmly on track to meet management expectations” for FY21F and indicated momentum is likely to continue beyond that, driven by growth in datacentres and renewables and a 50% enlargement of its UK factory. It has also announced a £10m refinancing, including the redemption of its convertible loan notes. Lower interest costs nudge up our FY21F adjusted PBT from £2.0m to £2.1m. Northbridge als
Companies: Northbridge Industrial Services plc