Braskem SA

Braskem SA (NYSE: BAK) is a Brazil-based integrated petrochemical company for the first and second generation of thermoplastic resins. The Company's activities are divided into three operational segments: Brazil; the United States and Europe; and Mexico. The Brazil segment is focused on the production of polyethylene (PE), polypropylene (PP) and polyvinylchloride (PVC) resins, in addition to basic chemical inputs such as ethylene, propylene, butadiene, benzene, toluene, chlorine, soda, and solvents, among others.

Recent Financial and Business Updates:

• Challenges in Global Demand Landscape: During the second quarter, Braskem faced ongoing challenges in the global demand landscape, primarily driven by (i) reduced global consumption due to elevated interest rates and persistent inflationary pressures; (ii) a de-stocking effect within the converters chain; and (iii) industrial activity in China recovering below market expectations. Furthermore, the introduction of new capacities continued to impact chemical and petrochemical spreads in the international market. In this context, Braskem's operational rate in Brazil for 2Q23 was lower compared to 1Q23, primarily due to reduced demand and operational instabilities, resulting in a 13% decline in total sales volumes of resins and key chemicals in the Brazilian market. Nevertheless, the average utilization rate in the United States & Europe segment remained consistent with 1Q23, with a 3% increase in sales volume, driven by higher sales in the United States. The Mexico segment exhibited a notable 14 percentage point increase in utilization rate, supported by an improved supply of domestic and imported feedstock, resulting in an 8% increase in polyethylene (PE) sales volume during the period.
• Financial Results: Against this backdrop, Braskem reported a Recurring EBITDA of USD 140 million (R$703 million) for the quarter and a net loss attributable to shareholders of USD 156 million (R$771 million). In terms of financial stability, Braskem maintained a robust cash position of USD 2.9 billion (R$14.0 billion), which is sufficient to cover obligations maturing over the next 74 months, and a well-structured long-term debt profile.
• Cash Generation and Working Capital Management: Additionally, Braskem remains committed to implementing corporate initiatives aimed at optimizing cash generation through improved working capital management. This resulted in a positive variation of R$1 billion, driven by (i) a reduction in receivable turnover days; (ii) a 15% decrease in average feedstock prices in the international market and an 8% reduction in average finished product prices in inventories; and (iii) effective management of suppliers with an increase in payable turnover days.
• Focused Growth Initiatives: Lastly, with regard to its growth strategy, the company continued to make progress in projects related to its growth avenues, including (i) traditional businesses, such as the construction of the ethane import terminal in Mexico, which has reached around 40% of physical completion; (ii) bio-based initiatives, including the expansion of green ethylene production capacity in Rio Grande do Sul by 30%; and (iii) recycling, involving an expanded product and segment portfolio in addition to the acquisition of Wise, a recycling company in which Braskem completed the acquisition of 61.1% in 1Q23.

Technical Observation (on the daily chart)

Presently, the stock has corrected by approximately 43.91% since reaching its highest point in the past 52 weeks, which occurred on June 20, 2023. The Relative Strength Index (RSI) over a 14-day period stands at 43.54, upward trending and recovering from oversold zone, with expectations of an upside movement. Moreover, the price is currently positioned below both the 21-day SMA and 50-day SMA trend-following indicators, which may act as dynamic short-term resistance levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a “SPECULATIVE BUY” rating is recommended for Braskem SA (NYSE: BAK) at its current market price of USD 7.11 as on November 07, 2023, at 08:30 am PDT. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

The reference date for all price data, currency, technical indicators, support, and resistance levels is November 07, 2023. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.