Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome

I thought Braskem (BAK) had so-so prospects back in the spring of 2018, as the company was likely to face tougher spreads and a wobbly Brazilian recovery but improving free cash flows. Although the local shares have done better than I expected on persistently higher prices, with the BRKM5.SA shares up almost 20%, the unsteady Brazilian situation and the resulting currency weakness have depressed the returns on the ADRs to just a bit over breakeven.

A tight U.S. polypropylene market could continue to help Braskem, and chemical spreads should remain favorable, but management has guided toward weaker utilization and demand and spreads outside of the U.S. and Mexico could be vulnerable. Braskem appears to have a little bit of upside from here as is, but the ongoing discussions between LyondellBasell (LYB) and Braskem's controlling shareholders Odebrecht are likely the best source of upside for shareholders, as a buyout in the low $30s would offer a clean outcome with a decent premium.

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Solid Pricing Boosting Braskem's Free Cash Flow, But A Buyout Is The Best Outcome