Wednesday, December 9, 2009

Braskem (BAK) - Brazilian Chemicals Maker

I've often lamented the small selection of Brazilian stocks available to US investors (about 35 issues - list here), but I thought I was quite familiar with the majority of them.  I was recently emailed a chart of Braskem (BAK) and after I wiped away the saliva dripping off my chin I decided to take a closer look.  While I've been digging into the name, the stock has continued to samba upward; obviously I've now placed this name on one of my multitude of watch lists.  As I think out 10-20 years, Brazil would appear to be the most compelling investing arena in the Western hemisphere.

Braskem is actually a quite large ($8+ Billion market cap and annual revenue, 4700 employees) chemical maker, which I assume is gaining favor as an "early cycle" recovery play.  Website here.

Braskem S.A., together with its subsidiaries, operates as an integrated petrochemical cracker and thermoplastics producer primarily in Brazil.   The company, formerly known as Copene Petroquimica do Nordeste S.A., was founded in 1972 and is headquartered in Camacari, Brazil.

But it also has some other product "lines" (if you will) outside of chemicals

The company also produces electric power, steam, compressed air, and purified drinking and demineralized water.

Braskem is the 35th largest chemical company in the world, and according to this story on Seeking Alpha, the 16th largest company of any sort in Brazil (by revenue) and 6th largest domestic company.  Petrobras (PRB) and Vale (VALE) - well known to American investors are #1, and #3 respectively.

[click to enlarge]

With all the focus in Brazil usually on commodities, we've been interested in trying to find exposure to the growth of the core economy, including domestic consumers - hence our exposure in Gafisa (GFA), and Market Vectors Brazil Small Cap (BRF).  [Jun 2, 2009: Market Vectors Brazil Small Cap (BRF) - a New ETF for Exposure to Brazil]  While Braskem doesn't have the same growth characteristics of many other Brazilian stocks, it would seem like an obvious industrial exposure for both domestic (and regional) growth. It could also be thought of a long term call option on Brazil's build out for both the World Cup and Olympics. [Oct 2, 2009: Brazil Rallies Upon Winning 2016 Olympics

Earnings estimates for 2010 are all over the map, but as the last earnings report shows - this is a cyclical name that seems to be in the early stages of rebound.

[Oct 27, 2009: Goldman Sachs "Hazardous" to Underweight Brazil, but Hold the Big Mac]
[Aug 11, 2009: BW - Brazil's Coming Rebound]
[May 16, 2008: Brazil is Sexy]

Long Gafisa, Market Vectors Brazil Small Cap in fund; no personal position

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