Whether it’s wood, steel, or plastic, if you sell a commodity these days, odds are pretty good you’re enjoying strong prices. That’s certainly good news for Braskem (BAK), as although these peak prices won’t last, the company can make quite a bit of money in the meantime. On top of those soaring prices, Braskem has moved to shore up issues like its Mexican supply problems and its liabilities for the Alagoas mining disaster.
I liked Braskem back in September, as I did expect higher prices as the economies of Brazil and the U.S. turned around. I didn’t expect multiyear highs for resin prices, though, and Braskem’s 50%-plus move has exceeded my expectations (not to mention significantly outperforming the Brazilian market as a whole).
Even if resin prices stay higher for longer, I don’t see today’s prices as sustainable. Longer term, I expect Braskem to generate mid-single-digit revenue growth as it leverages growth opportunities in North and South America. Although I don’t see much undervaluation on a long-term discounted cash flow basis, even assuming meaningful long-term improvement in FCF margins relative to the company’s historical performance, I do still see double-digit upside on an EBITDA basis, but I’d caution readers that buying Braskem today is basically volunteering for a game of musical chairs.
Read more here:
Braskem Strong On Soaring Resin Prices And More Operational Certainty
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