BAK - Braskem Looks To Exit A Period Of Painful Spread Compression
2024-06-14 12:28:57 ET
Summary
- Braskem has faced significant margin pressure as resin spreads have shrunk due to weaker demand in construction, industrial, and consumer markets and disadvantageous naphtha cost exposure.
- Although resin demand should be bottoming out, capacity additions in China and the U.S. leave Braskem vulnerable to an export market that is smaller and dominated by low-cost supply.
- I expect below-average EBITDA margins for the next three years and long-term revenue growth of around 3%, but that can still support a fair value as high as $10 today.
- M&A rumors aren't going away, but it remains to be seen if regular shareholders will see any benefit.
These are challenging times to be in the resins business, as weaker demand from construction, industrial, and consumer end-markets has combined with a significant increase in domestic Chinese production and some challenges on the cost side. For Braskem ( BAK ), a large Brazilian chemical company, those challenges have been even more severe given the company’s reliance on higher-cost naphtha as an input in its Brazilian operations has exposed it to even greater spread pressure....
Braskem Looks To Exit A Period Of Painful Spread Compression