BASF: the chemical giant losing gas and gaining doubts

BASF in free fall: buying opportunity or value trap?

A paradox: since 2007, anyone who had bought BASF would have collected 38 euros in dividends per share, almost the current price of the stock. And yet, the share price is trading around the same levels as 17 years ago. A tempting dividend yield, but one that hides a business that has lost the cheap Russian gas that used to feed its margins.

Shares in the German chemical giant have gone from almost 55 euros in April to 42 euros, a plunge of 24% in just a few weeks. The immediate cause: the loss of energy competitiveness after the rise in gas prices, compounded by an explosion at one of its plants in Germany that deepens the uncertainty. But the problem is structural: BASF no longer has access to the cheap Russian gas that sustained its margins, and its strategy of moving production to China or the United States has yet to take off.

The gas dilemma and industrial relocation

The war in Ukraine cut off the flow of cheap Russian gas, and BASF, with its enormous plants in Germany, was among the hardest hit. To address this, it announced investments in the United States – where gas is cheaper – and in China. However, investors are divided: some believe the bet on the US is the right one and that Trump could accelerate favorable conditions; others point out that India is actually becoming the real destination for production, and that funds investing there are already taking advantage of it. Meanwhile, the company continues cutting jobs in Germany and Spain.

Dividends, the two sides of the coin

BASF boasts a historic dividend that, added up since 2007, reaches 38 euros per share. But this year it will cut the payout to 2.5 euros, the lowest in years, and it is doing so while taking on debt to maintain it. For many investors, this policy is unsustainable: paying dividends with debt is nothing more than papering over the lack of real profits. The criticism is blunt: waiting 18 years to double your capital, adjusted for inflation, is a terrible investment, especially compared with the 1,200% gain Nvidia has posted in two years. But for the value investor, the dividend is a sign that the company is not going bankrupt and allows averaging down.

Floor or abyss? The two camps

Some see the fall as a buying opportunity, provided the price drops below 40 euros, and some even dream of 30 or 35 to load up on shares. They argue that the fundamentals – debt, cash, assets – remain solid and that the company is cyclical, not terminal. In the other camp, skeptics point out that the P/E ratio is unattractive, that barriers to entry are low and that chemicals is a sector where any competitor can emerge. Moreover, the 17-year stock market stagnation is no coincidence: the company does not generate enough profit to justify its valuation.

With the stock at 42 euros, the question hanging in the air is whether the floor is near or whether, as the most pessimistic forecast, there is still room to fall to 15 euros in 2026. The only certainty is that BASF is no longer the company it was before the Russian gas was cut off.