BASF - Update 07/09/2026 - ISIN DE000BASF111

00:00:07: A single, connected site covering ten square kilometres.

00:00:13: Everything here is linked by a dense network of pipes that tie roughly two hundred plants into one another.

00:00:19: This is BASF in Ludwigshafen on the Rhine The largest-connected chemical site in the world.

00:00:26: Whatever's made there you have almost certainly touched today without noticing

00:00:30: Really?

00:00:30: Where?

00:00:33: The foam in your mattress.

00:00:35: The vitamins in the animal feed, the fertilizer for vegetables on your plate.

00:00:39: Chemistry from this house is all of it!

00:00:42: The story of BASF began in eighteen sixty-five as the Badische Anilin und Sodafabrik Making Dies From Koltar.

00:00:50: That name became the abbreviation BSF and small factory grew over a century and half into largest chemical company in world.

00:00:58: Seventy five thousand customers every continent

00:01:02: Impressive.

00:01:03: And how has BASF's business been doing lately?

00:01:06: In July, twenty-twenty six, BAS F reported a record quarter—a good four billion euros of net income.

00:01:12: Guess how much that came from making and selling chemicals.

00:01:15: If the quarter was THAT good, um... three billion

00:01:19: A good half a billion euros.

00:01:22: About three and a half billion euros were the after tax gain on disposal From selling the coatings' business to Carlisle.

00:01:28: in other words The Record Quarter is really a sale.

00:01:46: That

00:02:00: sounds harsh for a company the market is celebrating right now, Warren.

00:02:04: An IPO of the agricultural division.

00:02:29: For anyone hearing us for the first time, I'm talking with Warren Wise.

00:02:33: An AI that analyzes and rates equity stories.

00:02:53: And

00:02:59: I'm Corey Capitol, also AI the voice of The Private Investor.

00:03:02: Every episode is selected reviewed and approved by an editorial team.

00:03:24: That's why this image fits.

00:03:26: Don't picture BASF as a chemical plant, picture of vast

00:03:29: farm A Farm?

00:03:31: that actually works!

00:03:33: I know people who even use the BAS-F agrar vetter app for their weather forecasts because it is so much more accurate than regular one.

00:03:40: When you hear BAS F You don't think farming first but they're really good at

00:03:46: Exactly, present everywhere and invisible as we said at the start.

00:03:50: So a vast farm – sixty billion euros of capital tied up!

00:03:55: In my picture those are the fields.

00:03:57: And this farm has something special It's set-up is closed loop.

00:04:01: The grain field supplies straw for barns in livestock.

00:04:05: The manure from barns fertilizes vegetable fields.

00:04:09: Vegetable waste feeds pigs.

00:04:11: Pig manure goes back on to grainfield.

00:04:14: Nothing leaves the farm, everything nourishes the next thing.

00:04:18: That's supposed to make it cheaper than any competitor who has to buy fertilizer feed and straw

00:04:23: separately.".

00:04:23: That

00:04:24: is what the famous verbund BASF talks about.

00:04:27: Exactly!

00:04:28: So much for theory…and its clever.

00:04:31: But fields haven't been yielding enough to sustain the farm for years.

00:04:35: And instead of putting seed corn into ground for season The farmer eats it and hands rest to his co-owners.

00:04:43: That's the dividend in this picture?

00:04:45: Dividends, buybacks and deferred investment combined.

00:04:49: The farmer pays out more than the harvest brings-in makes up a difference from his stores or borrows it from his neighbor And on top of that he is selling his best fields!

00:04:58: Thats' the core my report...the farm is spending more then earns…and there are three reasons for that.

00:05:04: they're connected.

00:05:05: Which are they Warren?

00:05:06: First..The Fields yield too little to their size the structural deficit.

00:05:12: Second, more is still being distributed than comes in.

00:05:15: you could say dividend on credit.

00:05:18: and third while the board promotes the loop The very field that's supposed to be its engine Is losing money?

00:05:24: The strategic discrepancy.

00:05:26: we'll start with the first two because That's where the roots of the problem

00:05:30: lie.

00:05:31: So let's start with a field that yielding too little.

00:05:34: BASF itself says, every euro tied up in the business has to return ten percent for it be worthwhile.

00:05:41: Ten percent!

00:05:42: That's their own bar not mine.

00:05:44: Guess Corey what actually comes back?

00:05:46: The way you ask Warren... It must be less I'll guess seven

00:05:51: Just under six A little more than half their own bar, measured against it.

00:05:55: every euro tied up destroys roughly four percentage points of value.

00:06:00: Translated to our farm the farmer needs to bring in ten sacks of harvest per field To make the farm work.

00:06:06: he manages six.

00:06:07: and is that a one-off slip?

00:06:09: Unfortunately not.

00:06:11: It's a pattern but The trend shows.

00:06:12: BASF Is working on it.

00:06:14: two years ago for an a half percent then just over five now Just under six Third year, running below its own cost of capital but at least heading upward.

00:06:24: But that's rising!

00:06:25: Isn't exactly the recovery the market is talking about?

00:06:28: The direction is right –the pace isn't– just over one point in three years against a gap of four—at this rate it closes in about a decade.

00:06:36: and it's worth asking why the number rose at all….

00:06:39: guess... the earnings or the capital?

00:06:42: The earnings —that what Rose means Warren-.

00:06:45: now I'm confused.

00:06:46: The number only rose, Corey because let's say the farmer moved his fence a bit and recalculated.

00:06:54: BASF stripped out the coatings business –the fields look smaller….

00:06:58: …the ratio per field looks better but in the end... ...the remaining fields haven't produced any more than

00:07:05: before.".

00:07:06: And management can see this?

00:07:07: They can see it so clearly that they tied a bonus to it.

00:07:11: Target value eleven percent.

00:07:13: Target achievement for twenty-twenty five zero.

00:07:16: Management certified to itself through its own bonus system that it didn't earn its cost of capital.

00:07:23: That's disarmingly honest, I still don't like the economics behind

00:07:27: it.".

00:07:27: So The Harvest is thin!

00:07:29: How does the farmer distribute us?

00:07:31: In twenty-twenty five, BASF generated just over one billion three hundred million euros in free cash flow.

00:07:37: What flowed to shareholders was nearly two and a half billion dividends and buybacks combined.

00:07:43: for every euro earned one Euro.

00:07:46: seventy six went out And at the same time The company is buying back shares with borrowed money that isn't shareholder friendly.

00:07:53: That's shareholder flattering.

00:07:55: it feels generous but It comes at the expense of the balance sheet.

00:07:59: What does the balance sheet actually look like at this point?

00:08:02: Net debt stands at three-point-three times operating earnings.

00:08:07: Above the three times I treat as a caution threshold for capital intensive chemical companies, and the debt service coverage ratio sits at eighty eight cents on the euro.

00:08:16: The business doesn't even cover the repayments falling to...the debt isn't being paid down it's been rolled forward.

00:08:23: That works!

00:08:24: As long is the ratings hold.

00:08:28: And what's often forgotten, the dividend has already been cut once.

00:08:32: For twenty-twenty three it was three euros forty.

00:08:36: now its two twenty five.

00:08:37: that line is being defended with at least twelve billion in promised distributions over four years.

00:08:44: on average The business earns one and

00:08:45: a half.

00:08:46: What's promised?

00:08:47: Is double!

00:08:48: What comes then ?

00:08:49: And equation only works as long there something left to sell.

00:08:53: A quick word on our own behalf.

00:08:55: The full Warren Wise Report examines an equity story across eight dimensions, page by page against the annual report.

00:09:03: If you want that view for your own company, warren-wise.com.

00:09:08: Let's continue.

00:09:22: Without grain, no straw.

00:09:24: Without straw—no barn.

00:09:26: Without barn — no

00:09:28: manure.".

00:09:28: If the grain field doesn't produce... ...the entire loop is at risk!

00:09:32: And that's exactly what happened?

00:09:35: Exactly.

00:09:36: The chemicals segment….

00:09:37: …the grainfield of our farmer – the start-of-the-verband loop– posted an operating loss of €三 hundred and seventy four million in twenty twenty five minus three point seven percent margin.

00:09:48: The operational reality contradicts the strategic narrative.

00:09:52: And which fields actually bring in something?

00:10:00: And those are the

00:10:08: ones being sold.

00:10:18: The best margin in the group, an IPO is being prepared.

00:10:22: The fields that produce are being sold.

00:10:24: What stays is the loop and its engine running at a

00:10:27: loss.".

00:10:28: But basic chemicals is a cyclical business.

00:10:31: Right now.

00:10:32: cheap energy in America And new competition from the Middle East Are pushing prices down.

00:10:37: Isn't this simply the trough?

00:10:39: In a trough especially... ...the loops cost advantage ought to show.

00:10:42: Five of six segments shrank in revenue in twenty-twenty five While global chemical production grew.

00:10:48: There's more than cycle at work here.

00:10:50: And the forecasts, how reliable are they?

00:10:53: Look at how BASF treated its own forecast for twenty-twenty five in February.

00:10:58: twenty-Twenty Five The group projected just over eight billion in EBITDA before special items.

00:11:05: In July the Group took that back to seven point five.

00:11:08: in October down again two seven.

00:11:10: In the end BAS F delivered six and a half below the third already lowered range.

00:11:16: Twenty percent below the starting point.

00:11:18: Cut twice and still missed

00:11:20: Though one has to add, One of two cuts was technical The coatings business stripped out.

00:11:26: The other was operational.

00:11:28: A planning process that starts That far from reality costs credibility.

00:11:32: And given that track record It's genuinely notable when guidance is raised instead of cut I'll say it explicitly.

00:11:39: And a target for twenty-twenty eight?

00:11:41: Nine to eleven billion From today's flat base.

00:11:44: Three and a half billion are missing in two years.

00:11:47: But guidance was just raised, isn't that exactly the turning point?

00:11:51: After two cuts in a single year The currency of trust has been spent more generously than was perhaps advisable.

00:11:58: A good quarter measured against an expectation That was cut twice is for now a step back onto a path you laid low yourself.

00:12:11: What makes value investors?

00:12:13: take a closer look at BASF, despite all

00:12:24: of this?

00:12:39: are covered.

00:12:42: The supervisory board more than ninety percent independent, thirteen risks named and quantified in euros, eleven insider transactions by Board members.

00:12:52: every single one a purchase not one sale... And the Board bonus actually bit on the return on capital.

00:12:59: zero-percent target achievement as I

00:13:01: said.".

00:13:01: That's an extensive positive list!

00:13:04: ...and it still is too?

00:13:05: Because earning power growth quality and capital allocation each sit at only two The second lowest score.

00:13:12: Financial resilience just about.

00:13:14: managers are three, four strong dimensions can't save a company when the engine underneath doesn't earn.

00:13:20: and When you look at the full picture A contradiction emerges?

00:13:23: A protected position on the outside... ...a core that loses money On the inside And a recurring pattern in how capital is handled.

00:13:30: The bottom line Two out of five Zone baseline Structural weaknesses One tier below my watch list.

00:13:39: The steps are real.

00:13:41: They are, and that belongs in the account!

00:13:58: Is

00:14:09: this too a cell signal?

00:14:10: I

00:14:11: wouldn't put it that way.

00:14:12: My score assesses the equity story, The Story A company tells about its own future and numbers have to carry.

00:14:19: It doesn't assess price.

00:14:21: An excellent business can be bad share if you pay much And mediocre one is worth while

00:14:28: what would happen for two

00:14:30: Upward.

00:14:31: Two or three years of return on capital above its own bar, distributions within what's earned investment back-above depreciation and a visible return from the transformation.

00:14:41: not just activity but result downward.

00:14:45: if basic chemicals continues to lie fallow in seed corn is still being handed out that the fields need.

00:14:50: What do I take away?

00:14:51: From this?

00:14:52: as an investor for the next set of accounts whichever company it is

00:14:56: Three rules first Always measure return on capital against the bar.

00:15:01: The company sets itself not Against zero.

00:15:04: second if more is distributed than earned ask where the difference comes from.

00:15:09: and third when profit jumps Ask what was sold?

00:15:13: And mine though.

00:15:14: louder a single quarter Is celebrated the more closely the years before it are worth looking at,

00:15:20: and with that the underlying pattern and It genuinely extends beyond BASF.

00:15:25: When a company distributes more then it earns fills the gap with debt and disposals, And the centerpiece of its own story doesn't generate a profit.

00:15:33: It's consuming it substance.

00:15:36: At BASF that looks like this The return on capital has sat below Its own cost for three years.

00:15:42: The Gap to shareholders is filled With Debt & Disposals.

00:15:46: Guidance was cut twice and still missed.

00:15:57: Together they describe a distribution policy that consumes the substance of the company to keep a dividend story alive, That the operating business no longer supports.

00:16:06: The farmer is eating his seed corn

00:16:08: And a record quarter from a sale doesn't change that.

00:16:12: Perhaps it's the beginning of better harvest.

00:16:14: What decides isn't one-quarter But whether fields yield again what they cost.

00:16:20: For the moment... ...the business earns less than its capital costs and more is distributed then their own.

00:16:47: The content of this episode is for general information purposes only.

00:16:55: It does not constitute investment advice or an invitation to buy, hold and sell any financial instrument.

00:17:02: All assessments are based on a model-driven AI supported analytical approach.

00:17:09: Warren Wise is fictional synthetic character.

00:17:12: neither real person nor their estate Nor company connected with such persons.

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