Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

GrafTech International Ltd / Equity Bottom-Up

<ul>
<li>Since our first bullish note on  <a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> the stock is down -31% due to softer ASP's and cost inflation. We believe these headwinds will persist.</li>
<li>Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. </li>
<li>Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.</li>
</ul>


Since our first bullish note on  GrafTech International Ltd (EAF US) the stock is down -31% due to softer ASP's and cost inflation. We believe these headwinds will persist.
Deleveraging continues with net debt declining from 1.1 bn to 865 mn USD YoY, but the pace has slowed due to negative working capital changes resulting in lower OCF. 
Factoring in a 12% drop in ASP YoY, the stock trades at 6.3x FY23 and 4.7x EV-EBITDA, pushing our thesis of debt deleveraging/capital return further out.


Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance

<ul>
<li>
<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> reported solid results for Q1 2022. The stock still continues to look cheap at 4.7x FY22 PE.</li>
<li>The debt deleveraging target of 400 mn USD a year seems on track, and the company will be zero debt by FY23. FCF yield is 24% at the current price.</li>
<li>The company also bought back 30 mn USD of stock (3 mn shares @9.88 USD/share representing 1.1% of the outstanding shares) in Q1 2022. </li>
</ul>



GrafTech International Ltd (EAF US) reported solid results for Q1 2022. The stock still continues to look cheap at 4.7x FY22 PE.
The debt deleveraging target of 400 mn USD a year seems on track, and the company will be zero debt by FY23. FCF yield is 24% at the current price.
The company also bought back 30 mn USD of stock (3 mn shares @9.88 USD/share representing 1.1% of the outstanding shares) in Q1 2022. 


Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue

<ul>
<li>
<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> Q4 2021 results demonstrated the company is well on track to an FY22 profit of over 520 mn USD, implying a 5x PE. </li>
<li>Debt deleveraging remains a powerful theme in the story. With an average debt reduction of 400 mn USD a year, the company will be close to zero debt by 2023. </li>
<li>We believe the company will also use its cash to buy back stock ( 159 mn USD authorized buyback or 6% of market capitalization ) and pay dividends. </li>
</ul>



GrafTech International Ltd (EAF US) Q4 2021 results demonstrated the company is well on track to an FY22 profit of over 520 mn USD, implying a 5x PE. 
Debt deleveraging remains a powerful theme in the story. With an average debt reduction of 400 mn USD a year, the company will be close to zero debt by 2023. 
We believe the company will also use its cash to buy back stock ( 159 mn USD authorized buyback or 6% of market capitalization ) and pay dividends. 


Graftech: Encouraging Q4 2021, Stronger Pricing into 2022

<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> delivered a solid Q3 2021 result and guidance on their conference call, and we believe that the stock, despite the 20% rally post results, is primed for a run in the short term.
Key highlights of the results and the conference call are:
<ul>
<li>Guidance for an increase in spot pricing by 7-9% QoQ for Q4 2021. A significant price increase can be expected for 2022. </li>
<li>Deleveraging continues at a decent rate, with net debt declining from 1.11 bn USD to 1.04 bn USD representing a 6.3% decline. We forecast the company will be net cash by 2023.  </li>
<li>The company also continues its shareholder-friendly corporate actions by authorizing a share repurchase of 150 mn USD. The company has now been authorized to repurchase up to 163 mn  USD in shares of the company's common stock, inclusive of the 13 mn USD remaining under the prior stock repurchase program as of the end of the third quarter this year.</li>
<li>While the company used a majority of the cash flow to reduce debt and plan to continue to do so through the balance of this year, in the third quarter, they also used 46 mn USD to repurchase 4.3 million shares of stock at an average price of $10.77.</li>
</ul>
Despite this rally, the stock trades at 6.8x FY22 PE and 5.3x EV-EBITDA conservatively on our numbers. Given the stability in cashflows over the medium-term, we believe the stock will rerate to an 8-9x multiple from here.

GrafTech International Ltd (EAF US) delivered a solid Q3 2021 result and guidance on their conference call, and we believe that the stock, despite the 20% rally post results, is primed for a run in the short term.
Key highlights of the results and the conference call are:

Guidance for an increase in spot pricing by 7-9% QoQ for Q4 2021. A significant price increase can be expected for 2022. 
Deleveraging continues at a decent rate, with net debt declining from 1.11 bn USD to 1.04 bn USD representing a 6.3% decline. We forecast the company will be net cash by 2023.  
The company also continues its shareholder-friendly corporate actions by authorizing a share repurchase of 150 mn USD. The company has now been authorized to repurchase up to 163 mn  USD in shares of the company's common stock, inclusive of the 13 mn USD remaining under the prior stock repurchase program as of the end of the third quarter this year.
While the company used a majority of the cash flow to reduce debt and plan to continue to do so through the balance of this year, in the third quarter, they also used 46 mn USD to repurchase 4.3 million shares of stock at an average price of $10.77.

Despite this rally, the stock trades at 6.8x FY22 PE and 5.3x EV-EBITDA conservatively on our numbers. Given the stability in cashflows over the medium-term, we believe the stock will rerate to an 8-9x multiple from here.

Graftech, Solid Results + Bullish Guidance in Q3 2021

<a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd (EAF US)</a> is a cheap pure play on graphite electrodes that find most of its usage in producing steel in the electric arc furnace (EAF). 
<ul>
<li>Trading at 7.3x FY21 and 5.6x FY22 PE, with a forecasted free cash flow of over 500 mn USD in 2022 in the very least,  the stock trades at an 18% free cash flow yield.</li>
<li>We believe that the company will use its free cash flow to deleverage as the current net debt on the balance sheet is 1.11 bn USD. With a run rate of 500 mn USD of free cash flow, we estimate the company will be debt-free by 2023.</li>
<li>We believe the company will return the free cash flow to shareholders as the company has no long-term growth plans. With a 50% payout ratio, we forecast a dividend yield of 8-9% in FY23. </li>
<li>The graphite electrode market has solid demand-supply dynamics, with China pledging to go greener and reduce its dependence on iron ore. One of MIIT's stated targets is to have 20% of steel output in China as EAF ( we estimate that as of now, that number is ~10% ).</li>
</ul>
Risks
<ul class="">
<li>Short-term difficulties in the expansion of EAF steel-producing capacity due to high electricity costs and limited scrap supply.</li>
<li>The company has contracts that are priced at 9,900 USD/ton to sell 100k tons of electrodes. The inability of customers to pay would put <a href="https://www.smartkarma.com/entities/graftech-international-ltd" target="_blank" data-smartkarma-citation="entities:27124:1" rel="noopener">GrafTech International Ltd's (EAF US)</a> cash flows at risk, and we see this as unlikely since steel prices are high globally.</li>
<li>Controlling shareholder Brookefield Asset Management is selling out. This, we believe, is an overhang on the stock price. </li>
</ul>
With clear guidance on long-term pricing, we can easily see the company making 730 mn USD of EBITDA in FY22. Based on a 6x EV-EBITDA multiple, we can derive a 16 USD share price representing 60% upside from here.

GrafTech International Ltd (EAF US) is a cheap pure play on graphite electrodes that find most of its usage in producing steel in the electric arc furnace (EAF). 

Trading at 7.3x FY21 and 5.6x FY22 PE, with a forecasted free cash flow of over 500 mn USD in 2022 in the very least,  the stock trades at an 18% free cash flow yield.
We believe that the company will use its free cash flow to deleverage as the current net debt on the balance sheet is 1.11 bn USD. With a run rate of 500 mn USD of free cash flow, we estimate the company will be debt-free by 2023.
We believe the company will return the free cash flow to shareholders as the company has no long-term growth plans. With a 50% payout ratio, we forecast a dividend yield of 8-9% in FY23. 
The graphite electrode market has solid demand-supply dynamics, with China pledging to go greener and reduce its dependence on iron ore. One of MIIT's stated targets is to have 20% of steel output in China as EAF ( we estimate that as of now, that number is ~10% ).

Risks

Short-term difficulties in the expansion of EAF steel-producing capacity due to high electricity costs and limited scrap supply.
The company has contracts that are priced at 9,900 USD/ton to sell 100k tons of electrodes. The inability of customers to pay would put GrafTech International Ltd's (EAF US) cash flows at risk, and we see this as unlikely since steel prices are high globally.
Controlling shareholder Brookefield Asset Management is selling out. This, we believe, is an overhang on the stock price. 

With clear guidance on long-term pricing, we can easily see the company making 730 mn USD of EBITDA in FY22. Based on a 6x EV-EBITDA multiple, we can derive a 16 USD share price representing 60% upside from here.

Graftech: Graphite Electrode Play With Debt Deleveraging

United States

GrafTech International Ltd. manufactures and provides natural and synthetic graphite and carbon based products and services. The Company offers graphite electrodes, petroleum needle coke, crystalline form of carbon, and energy solutions for manufacture of steel, aluminum, silicon metal, automotive products, and electronics. GrafTech International serves customers worldwide.

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GrafTech International Ltd (EAF US)

Graftech: Headwinds Persist from Cost Inflation and Soft Pricing Guidance

Graftech is a play on the graphite electrode industry. Trading at 6.3x FY23 PE and 4.7x EV-EBITDA, the company is a debt deleveraging and capital...

Sameer Taneja

Graftech Q1 2022: Debt Deleveraging Continues, LTA Pricing Overhang An Issue

Graftech is a cheap stock trading at 4.7x PE. Debt deleveraging target of 400 mn USD a year is on track, and the company will be zero debt by FY23....

Sameer Taneja

Graftech: Encouraging Q4 2021, Stronger Pricing into 2022

Trading at 5.4x FY22, Graftech is a play on the shift to greener EAF steel production and superior capital allocation in the form of buybacks and...

Sameer Taneja

Graftech, Solid Results + Bullish Guidance in Q3 2021

Graftech concluded a very bullish conference call post its Q3 2021. Trading at 6.8x PE, we believe the stock is cheap with a significant increase...

Sameer Taneja

Graftech: Graphite Electrode Play With Debt Deleveraging

Trading at 7.3x FY21 and 5.6x FY22 PE, with a forecasted free cash flow of over 500 mn USD in 2022 in the very least, Graftech trades at an 18%...

Sameer Taneja

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