Long-term value is not yet fully priced in; Agricultural Solutions listing and Verbund earnings improvement form dual catalysts

Overview

After updating BASF's model for second-quarter 2026 results, the report focuses on assessing its medium- to long-term value creation potential. The core judgment is that the market is pricing the company close to a no-growth scenario, while the Verbund business can still benefit from volume expansion, fixed cost reductions, the start-up of the Zhanjiang site, and European capacity consolidation; meanwhile, the planned listing of Agricultural Solutions can allow a high-quality, high-multiple business to obtain independent pricing. The share price may continue to fluctuate in the short term due to developments in the Strait of Hormuz, but the report believes pullbacks provide buying opportunities.

Core views

The investment thesis is built on two judgments: first, 2026 is not the peak for Verbund earnings, as structurally higher upstream chemical prices, a steeper industry cost curve, BASF's integrated advantages, fixed cost reductions, and the Zhanjiang project will support medium-term earnings growth; second, Agricultural Solutions is R&D-driven, has higher margins and more stable end-market demand, and should command a valuation above that of traditional diversified chemicals businesses, with its 2027 listing serving as a catalyst for value unlocking. Even if only one of these judgments is adopted, the current valuation still appears low.

Analysis framework

The report uses 2028 forecasts as the basis for a sum-of-the-parts valuation and discounts two years to the target price date using a 9.0% weighted average cost of capital. Verbund, ECMS, and Battery Materials are valued at 7.0x enterprise value to EBITDA, Agricultural Solutions at 10.0x, feed enzymes at 15.0x, and Coatings based on the announced transaction value; it also cross-checks through peer multiples, scenario sensitivity, a 2023—2028 EBITDA bridge, industry supply-demand and cost curves, and a headcount reduction model.

Methodology notes

• Valuation methodssum-of-the-parts valuation

  Calculate enterprise value separately for each business based on earnings quality and comparable valuations, then derive per-share value through asset-liability bridging and discounting.

  Based on 2028 forecasts, the report values Verbund, Agricultural Solutions, ECMS, Battery Materials, feed enzymes, and Coatings separately, and discounts two years at a 9.0% weighted average cost of capital to derive a 12-month target price of €62.

• relative valuationenterprise value to EBITDA comparable multiples

  Reference mid-cycle valuations of comparable companies to select enterprise value to EBITDA ratios for different businesses.

  Verbund is valued at 7.0x, close to the long-term median of around 7.1x for diversified and commodity chemical companies such as Dow, Westlake, and LyondellBasell; Agricultural Solutions is valued at 10.0x to reflect its R&D-driven and specialty attributes.

• earnings forecastEBITDA bridge analysis

  Break down the impact on earnings of factors including volume, costs, pricing, energy, FX, and business mix.

  Starting from 2023 earnings, the report quantifies the volume contribution from Zhanjiang start-up and industry consolidation, fixed cost savings, energy costs, net pricing, and other factors to derive 2028 Verbund EBITDA.

• scenario analysisvaluation sensitivity analysis

  Test per-share value under different combinations of business earnings forecasts and valuation multiples.

  By changing EBITDA and valuation multiples for Verbund and Agricultural Solutions, the report examines the implied assumptions behind a share price of around €50, with results showing that current pricing does not reflect meaningful earnings growth.

• industry analysissupply-demand balance and cost curve

  Assess product prices and industry spreads by combining capacity additions, plant exits, and crude oil and natural gas prices.

  The report believes some capacity may permanently exit, higher oil prices will lift marginal production costs, while changes in natural gas economics are limited; therefore, the structural environment for upstream chemicals is better than before the Iran crisis.

• cost reduction analysispersonnel cost savings model

  Estimate fixed cost savings based on employee numbers, average personnel costs, wage inflation, and the pace of layoffs.

  The report assumes Verbund headcount will decline by 20% during 2025—2029, estimating savings of around €2.1 billion during 2024—2029, covering approximately 85% of the fixed cost savings plan.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BASF SE (BAS.GR)

  Core covered company in the report, with a positive rating maintained.

  Strengths

  Global integrated production network has supply-chain resilience and internal intermediate allocation capability; significant room for fixed cost reductions; the Zhanjiang project and industry capacity consolidation support volumes; Agricultural Solutions has higher margins, R&D barriers, and independent listing potential.

  Weaknesses

  Current earnings are at a relatively low point in the cycle, and EBITDA per employee is below peers; European energy costs are higher, and net pricing remains weak; the large organization and existing labor arrangements may slow the pace of adjustment.

  Comparison

  Verbund is valued at a 7.0x enterprise value to EBITDA ratio, close to the 7.1x long-term median for diversified and commodity chemical comparables; Agricultural Solutions is valued at a higher 10.0x multiple.

  Risks

  Strait of Hormuz developments, deterioration in global demand, cost reductions falling short of expectations, changes in the pace of European plant exits, Zhanjiang ramp-up difficulties, and delays to the Agricultural Solutions listing.

• BASF Agricultural Solutions

  Key value-unlocking asset planned for listing.

  Strengths

  Strong R&D investment, high degree of intellectual property and product differentiation, higher margins, and relatively resilient end agricultural demand; the seeds and traits business has strong customer stickiness and entry barriers.

  Weaknesses

  The crop protection business still faces patent expiries, generic competition, raw material inflation, and regulatory pressure, while performance is also affected by agricultural economic cycles.

  Comparison

  The report assigns a 10.0x enterprise value to EBITDA ratio, above Verbund's 7.0x, reflecting its specialty chemicals attributes and superior earnings quality.

  Risks

  Listing progress or valuation below expectations, weakening agricultural commodity prices, regulatory tightening, and commercialization of R&D outcomes falling short of expectations.

• European diversified chemicals peers

  Used as valuation and competitiveness references for the Verbund business.

  Strengths

  Industry capacity consolidation and the exit of inefficient plants can improve supply-demand and utilization rates for surviving companies.

  Weaknesses

  Independent producers or chemical parks reliant on a single cracker are more vulnerable during supply disruptions and periods of margin compression.

  Comparison

  The long-term median enterprise value to EBITDA multiple for comparable companies such as Dow, Westlake, and LyondellBasell is around 7.1x, broadly consistent with the 7.0x assigned to BASF Verbund in the report.

  Risks

  If closed capacity restarts or demand falls to crisis levels, the logic of industry supply-demand improvement and price recovery will weaken.

Key data

• RatingOutperformThis report reiterates the rating.
• Target price€62.00The previous target price was €61.00, with a target horizon of 12 months.
• Reference closing price€51.11As of 2026-08-06.
• Potential upside21%Calculated based on the reference closing price and target price.
• Adjusted EBITDA forecast revision2026 +8.9%; 2027 +6.6%; 2028 +5.0%Based on the model update following second-quarter 2026 results.
• Valuation discount rate9.0%Weighted average cost of capital raised by 30 basis points.
• 2028 Verbund EBITDA€6.248 billionCorresponds to a 2023—2028 compound growth rate of 7.0%, above consensus expectations of €5.904 billion, but 10.8% below the lower end of management's €7.0 billion to €9.0 billion guidance.
• Verbund fixed cost savings planapproximately €2.418 billionThe target is to reduce fixed costs by approximately 20% by 2029 from the 2024 base.
• Headcount reduction assumption20% reduction during 2025—2029Expected to generate approximately €2.1 billion in savings, equivalent to around 85% of the overall fixed cost savings plan.
• Volume contribution from Zhanjiang and industry consolidationmore than €1.4 billion EBITDAThe Zhanjiang project is expected to contribute close to half of this incremental amount.
• Agricultural Solutions listing timingexpected in mid-2027Planned listing on the Frankfurt Stock Exchange; the Agricultural Capital Markets Day on 2026-11-24 may also serve as a pre-catalyst.
• Core valuation multiplesVerbund 7.0x; Agricultural Solutions 10.0xBoth are 2028 enterprise value to EBITDA valuation multiples.
• Agricultural Solutions market growth rate2020—2030 compound growth rate of 3.2%Driven by global food demand, yield improvement, and penetration of advanced seed and trait technologies.
• Dividend yield4.4%Data disclosed on the report's front page.

Impact & implications

If Verbund earnings grow as forecast in the report and Agricultural Solutions lists successfully, BASF's valuation framework will gradually shift from that of a low-growth diversified chemicals company to clearer segment-level pricing, and the discount embedded in the current share price is expected to narrow. The exit of inefficient European capacity may also allow BASF, with its integrated production system, to capture volumes after competitors exit. However, value realization is more medium-term, while short-term returns will still be affected by geopolitics, raw material and energy prices, and fluctuations in chemicals demand.

Risks

• Developments in the Strait of Hormuz and related supply disruptions may cause significant volatility in raw material prices and the share price.
• If global chemicals demand deteriorates to crisis levels, assumptions about supply-demand improvement and product price increases may fail.
• Restarting previously shut industry capacity could again exacerbate oversupply and pressure spreads.
• Higher-than-expected crude oil and European natural gas prices would increase production costs; energy costs are expected to have a negative impact of around €315 million on EBITDA in 2026—2027.
• Net pricing improvement slower than expected or inability to pass through raw material costs could weaken Verbund earnings recovery.
• Execution of fixed cost reductions, workforce optimization, or digitalization projects may fall short of expectations, especially as labor agreements may delay the pace of layoffs.
• Lower-than-expected decline in start-up costs and production ramp-up at the Zhanjiang site could affect volume and EBITDA contribution.
• A delayed listing of Agricultural Solutions, market valuation below 10.0x, or weaker business performance would reduce the magnitude of value unlocking.
• The seeds and crop protection businesses face risks from patent expiries, generic competition, regulatory changes, raw material inflation, and agricultural commodity price cycles.
• FX, business mix adjustments, and the pace of European capacity closures may cause earnings forecasts to deviate.

What to watch

• Navigation through the Strait of Hormuz and recovery of Middle Eastern chemical capacity.
• BASF's quarterly volumes, net pricing, and Verbund EBITDA trends to verify that 2026 is not the earnings peak.
• Actual delivery of fixed cost savings, changes in employee numbers, and progress on Ludwigshafen adjustments.
• The Zhanjiang site's start-up pace, start-up costs, capacity utilization, and EBITDA contribution.
• Permanent closures of European chemical plants, asset restructurings, and BASF's capture of volumes from exiting capacity.
• Business boundaries, financial targets, and listing arrangements disclosed at the Agricultural Capital Markets Day on 2026-11-24.
• Progress of the Agricultural Solutions listing in mid-2027 and the valuation multiple assigned by the market.
• Changes in crude oil, European natural gas, and polyolefin prices, as well as BASF's ability to pass through costs.
• Whether adjusted EBITDA for 2026—2028 can meet the raised forecasts.
• Industry demand, operating rates, and whether previously shut capacity restarts.