Back against the ropes, BASF shores up its foundations and bets on China

The German chemicals giant published its annual results last Friday. At the same time, it subtly urged its disgruntled shareholders to be a little more patient.

They have plenty of reasons to sulk: BASF's share price has, for several quarters, fallen back to the same level it stood at fifteen years ago. In that respect, the Ludwigshafen-based group is joining the wide-open club of German conglomerates whose obsolete model needs reinventing - including, of course, Siemens, Bayer, Volkswagen and ThyssenKrupp.

In 2025, BASF is posting revenue below its 2010 level, while its profit before taxes and special items has been almost cut by three over the period. The underperformance is even more striking once inflation is taken into account.

Meanwhile, the dividend per share has remained strictly unchanged. Moreover, for the third consecutive year, the payout is not covered by free cash flow; it is therefore no surprise that it was cut by a third between 2024 and 2025.

BASF's difficulties are not new, but they accelerated with the invasion of Ukraine and the end of cheap energy supplies from Russia. The avalanche of burdensome regulation in Europe has not helped either. That is likely what pushed the group to bet heavily on China, unfortunately at precisely the moment when the Middle Kingdom's economy was showing signs of running out of steam.

In comparison, the mega-site in Zhanjiang required €10bn in investment, ten times more than BASF's largest project in the US. The Chinese site thus becomes the group's third global hub, behind Ludwigshafen and Antwerp. Barely operational, it will still be loss-making in 2026. Management nevertheless promises a positive contribution from 2027.

At the end of 2025, BASF sold a 60% stake in its industrial coatings, varnishes and lacquers division to Carlyle. A plus point here, since the transaction was completed at a multiple favourable to the seller - in this case, 13x EBITDA before special items. It also follows the sale of the decorative paints business to Sherwin-Williams.

The agricultural division is also in line for a disposal, but the board is likely waiting for somewhat more forgiving market conditions after three punishing years for the sector as a whole. In any case, it has committed to using the proceeds from the various asset sales to reduce leverage and reassure investors.

With its share buyback programme on top of the dividend, BASF remains firm in its determination to return at least €3bn a year to shareholders. The scaling-back of the investment programme in China and the bazooka-style savings plan launched last year should, in principle, make it possible to honour that commitment.

That said, against a market capitalisation of €43bn and an enterprise value of €63bn, it is hard to see an attractive valuation here. BASF therefore needs to quickly get back to growth, but that will require an easing of the legislative environment in Europe - and, above all, no nasty surprises from China.