Braskem SA (NYSE:BAK), a Brazil-based petrochemical company, is currently under scrutiny as the Public Defender's Office of the State of Alagoas (DPE-AL) has filed a Public Civil Action against the company. The lawsuit, filed today, seeks to reassess the compensation for moral damages related to the geological event in Alagoas and is requesting the partial annulment of the agreements signed under the Financial Compensation and Relocation Support (PCF (LON:PCF)) program.
The DPE-AL has estimated the value of the claim at R$5 billion. Braskem, which was informed of the action through media sources and has not yet been formally notified, announced it will evaluate the situation and take appropriate legal actions within the given deadlines. The company has committed to keeping its shareholders and the market updated on any significant developments.
This legal challenge comes in the wake of the geological event in Alagoas, which had previously led to the establishment of the PCF program as a means to compensate and support affected individuals and communities. The specifics of the program and the nature of the geological event were not detailed in the press release.
Braskem has emphasized that the information provided in the press release is forward-looking and subject to risks and uncertainties. The company's management has cautioned that actual results could differ materially from those projected due to various factors, including changes in economic conditions, market dynamics, and legal proceedings.
In other recent news, Braskem SA has been upgraded from Neutral to Buy by Citi. This follows the company's second-quarter earnings for 2024, which, although weak, showed signs of recovery in the petrochemical industry.
The price target was adjusted to R$22.50 from the previous R$23.50, reflecting a valuation based on a 9.4x 2024 low-cycle enterprise value to EBITDA multiple, with an anticipated adjusted EBITDA of $1.3 billion for 2024.
Citi's analysis indicates a positive outlook for Braskem in the upcoming third quarter, with improved year-over-year results expected due to lower SG&A expenses and better performance in the Brazilian operation, especially after the shutdown of the Triunfo plant in the state of Rio Grande do Sul. Furthermore, improved petrochemical spreads in Brazil and Mexico are likely to boost the company's performance.
The adjustment in the price target to R$22.50, down from R$23.50, is based on a detailed valuation methodology and the expectations for the company's adjusted EBITDA in the coming year.
InvestingPro Insights
As Braskem SA (NYSE:BAK) faces legal headwinds, a look at the company's financial health can provide investors with additional context. According to InvestingPro data, Braskem operates with a significant debt burden and has been quickly burning through cash, which may affect its ability to make interest payments on its debt. These concerns are underscored by a negative P/E ratio of -1.59 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at -1.89, indicating that investors are wary about the company's profitability.
Furthermore, the company's Price / Book ratio for the same period stands at 177.43, which is considered high, suggesting that the market may be overvaluing the company's assets relative to its equity. Despite a revenue decline of 13.75% in the last twelve months as of Q2 2024, there has been a quarterly revenue growth of 7.43%, signaling some operational improvements. However, with a gross profit margin of just 5.94%, Braskem's profitability may be under pressure.
Investors looking for more in-depth analysis can find additional InvestingPro Tips on Braskem, including insights on valuation, profitability, and market performance, by visiting https://www.investing.com/pro/BAK. There are currently over ten additional tips available, offering a comprehensive picture of Braskem's financial and market status.
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