Healthy Spreads And International Expansion Helping Braskem, But Mind The Risks

Compared to what Braskem (NYSE:BAK) was 15, 10, or even just five years ago, I think it’s fair to say that management has done a good job of improving the business. Braskem is now much less dependent upon naphtha as a feedstock and the company has made strides in diversifying beyond Brazil. The company’s involvement in the Brazilian “Car Wash” scandal was certainly a major black mark against it, but Braskem has nevertheless established itself as a major global chemical company with room for further growth and improvement.

Braskem is leveraged to an emerging recovery in Brazil as well as ongoing demand growth in markets like Mexico and the U.S., as well as other export markets. There are risks tied to a corruption investigation in Mexico that could threaten its supply of attractively-priced ethane, but the company is moving forward with greenfield growth in the U.S. and the shareholder structure may become simpler in the relatively near future. With a discount tied to uncertainties in Mexico and the ownership situation the shares look only a little undervalued, but absolution in Mexico and a cleaner shareholder structure could support a fair value in the mid-$30s even as polyolefin spreads look as though they’ll decline.

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Healthy Spreads And International Expansion Helping Braskem, But Mind The Risks