by Sven Parplies, Euro on Sunday
Dgermany’s top corporations move between two extreme worlds. This is most evident at BASF. Group boss Martin Brudermüller can be happy about the good business figures: The sales of the world’s largest chemical company increased by 16 percent in the months of April to June, and the adjusted operating profit was maintained at the previous year’s level. And because things are going well, BASF has raised its forecast for the year.
But there is also this other, darker reality: war in Europe, rampant inflation, pandemic, Germany’s dependence on Russian natural gas. In an extreme scenario, BASF would even have to stop production at the main Ludwigshafen site. “Currently, all of our production sites in Europe are supplied with natural gas according to their needs,” confirms Brudermüller. The mere fact that something like this has to be mentioned makes the explosiveness clear.
Two thirds of DAX members has now published business results for the second quarter. It is the first reporting season whose figures are completely overshadowed by the Ukraine war and its economic side effects. The data from the financial service Bloomberg show that three quarters of the DAX companies have exceeded the profit expectations of the analysts.
“You can see that many companies from the DAX have pricing power and can therefore pass on higher costs to customers. But you can also see the first signs of the brakes, which could become stronger in the second half of the year,” observes Sven Streibel, the chief equity strategist at DZ Bank.
Headwind is getting stronger
Even in the cyclical sectors, i.e. sectors that are particularly sensitive to external disruptions, business is almost as if there were no crisis. Bottlenecks in production are even helpful for Mercedes-Benz. Because the demand for luxury cars exceeds the supply, the Swabians can largely do without the discounts that are usual in the industry.
Volkswagen and BMW also outperformed analysts for the quarter. BMW in particular points out the dangers on the route ahead. In addition to the ongoing supply bottlenecks, CEO Oliver Zipse sees an “increasing economic headwind” looming. Such statements are registered on the stock exchange: BMW is the first company in the industry to signal caution in terms of demand, emphasizes the analysis company Bernstein.
Skepticism beyond the limits of the DAX is reflected in leading indicators such as the business climate index. The economic barometer of the Munich ifo Institute, for which several thousand companies are surveyed every month, collapsed in July – the drop in business expectations is particularly clear. “High energy prices and the threat of gas shortages are weighing on the economy. Germany is on the verge of recession,” says the institute, describing the greatest concerns among companies.
Stockbrokers are also looking ahead. As a rule of thumb, stock markets look six months ahead. At this distance, forecasts can still be made relatively seriously. What stock market traders see in the near future is illustrated by valuation indicators such as the price-earnings ratio. This P/E, calculated on the basis of corporate earnings forecast by analysts for the next twelve months, was 17 in June 2020 and was therefore at a very high level in historical comparison. In the meantime, the value has fallen to eleven and is thus around 15 percent below the long-term average. So stockbrokers have already anticipated a cooling off.
The reluctance of investors softened the mostly good business results for the second quarter. Since the start of the series of figures in July, the DAX has gained slightly in value and thus stopped its descent. There were stronger swings in individual stocks.
The Biggest Winner
Sartorius shares gained almost eight percent on the day of the quarterly report. The laboratory equipment supplier was one of the pandemic winners because the company, as a supplier to the pharmaceutical industry benefited from vaccine development. Despite the defusing of the pandemic, Sartorius remains on course for growth, the current figures show.
RWE’s balance sheet was also rewarded with significant price gains – at most more than four percent on the day the figures were announced. Thanks to profitable business with gas, water, biomass and also in energy trading, the energy company has raised its forecast for the current year and is even now promising a “continuation of the positive earnings development” for 2023.
The disappointment with the figures from Fresenius Medical Care was particularly great. The dialysis specialist’s shares fell almost 15 percent after the board of directors cut the annual forecast due to staff shortages and rising costs. The analysts at JPMorgan are already preparing investors at FMC for ongoing challenges in the coming year.
Siemens Healthineers showed how sensitive stockbrokers react in the current environment. After weak quarterly figures, the share initially fell by more than nine percent, but was then able to largely recover after the board of directors confirmed its annual forecast despite the weaker second quarter.
At adidas, the outlook is disappointing. The recovery in business in China that had been calculated for the second half of the year has not materialized so far. The overall economic environment, especially in China, remains difficult, warned CEO Kasper Rorsted. Investors have already received the acknowledgment: the share of the sporting goods group has lost twice as much as the DAX this year.
INVESTOR INFO
The share of the chemical company is currently the hottest speculation in the DAX. BASF is moderately valued and the dividend yield is high. The problem is clear: the chemical industry consumes a lot of energy and is therefore severely affected by the gas crisis. In the worst case, BASF would probably receive preferential treatment as a supplier for many industries. Should the crisis ease, BASF would have significant upside potential.
In turbulent times, the utility is one of the quieter investments in the DAX. RWE has just raised its forecast for the current financial year and exceeded analysts’ expectations. The analysts at Barclays calculate that the share price underestimates the significant growth prospects in the field of renewable energies.
Good results, no big claims. The biotech equipment supplier increased its operating profit (Ebitda) by more than a quarter to 697 million euros in the first half of the year. The management of Sartorius is sticking to the previous forecast: An increase in sales of 15 to 19 percent is targeted, with an operating EBITDA margin of around 34 percent. Sartorius is a defensive growth stock and worth an investment after the price setback.
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