Braskem (BAK), the leading petrochemical company in the Americas, has found itself at the center of a high-stakes drama in recent months. The collapse of a potential acquisition deal with ADNOC, the Abu Dhabi National Oil Company, has sent shockwaves through the market, but a closer look reveals a company that is well-positioned to weather the storm and emerge stronger than ever.
The failed ADNOC deal was initially seen as a major setback for Braskem, with shares plunging nearly 30% in premarket trading. However, the muted price action and quick recovery suggest that the market had already priced in the collapse of the acquisition talks.
Indeed, Braskem’s underlying fundamentals paint a picture of a resilient and adaptable company. Despite the challenges it has faced, the company boasts a strong financial position, with approximately 70 months of liquidity – nearly six years’ worth of runway. This provides ample time for the company to navigate the current market conditions and capitalize on the expected upturn in the chemicals industry.
One of the key factors that has weighed on Braskem’s performance in recent years has been the Alagoas mine disaster, which has resulted in significant financial obligations. However, the company believes it is almost out of the woods, with nearly 100% of these obligations already paid out. The ongoing Brazilian Senate CPI (Parliamentary Commission of Inquiry) investigation into the disaster is expected to conclude in the coming weeks, providing much-needed clarity on any additional liabilities Braskem may face.
Braskem’s long-term prospects are further bolstered by its strategic importance to both the Brazilian and Mexican economies. As the main player in the Americas’ petrochemical industry, the company is considered too big to fail, with both governments likely to provide support if necessary.
Moreover, Braskem is poised to benefit from the completion of a new port in Mexico, which will allow for more advantageous feedstock pricing for its Idesa operations. This, combined with the expected improvement in margins and sales volumes across the petrochemical sector, paints a promising picture for the company’s future.
Indeed, Braskem has a long history of trading in a highly cyclical fashion, with the only times in the past 20 years that the stock has been as cheap as it is today being during the COVID-19 pandemic, the aftermath of the Carwash scandal, and the 2008-2009 financial crisis. This suggests that the current downturn may be a temporary blip, and that patient investors willing to ride out the cycles could be handsomely rewarded.
It’s clear that Braskem is facing a challenging period, but the company’s strong financial position, strategic importance, and the expected improvement in market conditions make it a compelling investment opportunity for those willing to look beyond the current headlines.
In conclusion, Braskem’s story is one of resilience and adaptability. While the failed ADNOC deal has caused a temporary setback, the company’s strong financial position, strategic importance, and the expected improvement in market conditions make it a compelling long-term investment opportunity. Investors who are willing to weather the cyclical nature of the business and focus on the company’s underlying fundamentals may be handsomely rewarded in the years to come.