BASF May Sell Paper Chemicals If Margins Don’t Rise, DZBank Says

BASF SE (BAS), the world’s biggest chemical maker, may sell its paper-chemicals business if profitability doesn’t improve over the next year to 18 months, according to Peter Spengler, an analyst at DZ Bank AG.

The business could fetch 900 million euros ($1.17 billion) based on estimated earnings before interest, tax, depreciation and amortization of 200 million euros this year, Spengler said. The paper chemicals business is exposed to “high” margin pressure because of new factories in China and may be sold within two years, the analyst said.

The paper-chemicals business was largely acquired in 2009 with the purchase of Switzerland’s Ciba Holding for $4.9 billion. Since then BASF has “dramatically” reduced capacity by closing factories in Europe and the U.S., Chief Executive Officer Kurt Bock said last week. The CEO is shifting the business away from paper to packaging materials, where he sees better growth opportunities.

“It’s more of a structural problem than a cyclical one,” DZ Bank’s Spengler said today by telephone. “I don’t see an end to it. The businesses are always under scrutiny.” Spengler recommends buying BASF shares.

A weak euro helped BASF increase sales at the paper chemicals division 1 percent to 1.63 billion last year. A 4 percent gain from currency effects more than compensated for a 2 percent drop in volumes and a 1 percent decline in prices at the unit, BASF said.

“I would forsee further consolidation of capacities in the paper chemical industry, which will bring the business to an acceptable level of profitability,” Bock said on Feb. 26 on a conference call with analysts. “Will it, at any time in the future be a star performer of BASF’s portfolio? That’s not very likely.”

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