Trying to find value in the Brazilian industrial commodities sector
has been an unrewarding task over the past year. Companies like Gerdau (NYSE:GGB) and Braskem (NYSE:BAK)
have shown me no love at all, as the combination of economic malaise
and currency erosion has weighed heavily on the value of these ADRs. In
the case of Braskem, there are additional worries tied to the company's
naptha supply arrangement with Petrobras (NYSE:PBR), global polyolefin spreads, and potential changes in the tax regime in Brazil.
The nearly one-third decline in Braskem's share price since my last update
is almost enough to tempt me to erase the company from my spreadsheets
and take a vow of silence on the stock. Brazil probably has not yet
reached its point of maximum economic pain and there are legitimate
concerns regarding the company's cost structure under the new Petrobras
agreement. That said, the shares are trading at 4.5 times the average
sell-side EBITDA forecast over the next 12 months and that seems
punitive relative to the company's leverage to an eventual recovery in
Brazil and its increasing diversification into natural gas as a
feedstock.
Continue here:
Braskem Not Fully Broken
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