BASF shares tumble after chemicals giant slashes outlook

FRANKFURT: BASF shares fell almost 7% early on Tuesday after an overnight profit warning in which the German chemicals giant citing trade friction forecast a 30% fall in adjusted annual operating profit instead of a rise.

The U-turn triggered ratings downgrades from Citibank, JP Morgan, Deutsche Bank and Jefferies and knocked shares in peers such as Covestro, Evonik, Lanxess and Wacker Chemie.

"Everybody expected a warning. But not to that extent. ...Really disastrous numbers," said one trader.

Chief Executive Martin Brudermueller at the company's AGM in May had insisted the company could achieve full-year operating profit growth at the lower end of a 1-10% range, even as analysts and journalists questioned the positive outlook.

"Brudermueller allowed himself to be swayed by the positive sentiment at the beginning of the year," said Arne Rautenberg, a fund manager at Union Investment. "It won't be the last big German company forced to revise its assumptions downward."

BASF had assumed the auto industry would deliver slight growth, even after 11 consecutive months of sales declines in China, the world's largest car market.

On Monday BASF changed its tune and said the US-China trade friction had dimmed the outlook: "The G20 summit at the end of June has shown that a rapid détente is not to be expected in the second half of 2019."

It warned that revenue for 2019 was likely to fall rather than rise as it had earlier forecast.

JP Morgan downgraded BASF to "neutral" from "overweight" in response. It said the magnitude of BASF's profit warnings within three months showed its extensive portfolio offered no obvious benefit.

The company makes petrochemicals, coatings, catalytic converters and foams.

Analysts at Evercore ISI said BASF's losses could prove worse than forecast, citing weakness in China where the company sees its first-half output falling 13%.

That could dip to "to something closer to mid-to-high teens," Evercore ISI analysts said.

BASF is due to present detailed earnings for the second half of the year on July 25.

Its shares were down 5.4% at 1018 GMT at 59.19 euros. The stock is down almost 40% over the last 18 months.

German chemicals industry association VCI last week warned of falling revenue on slower economic growth, weakening industrial activity and uncertainty caused by global trade conflicts.