GrafTech International Ltd.

EAF Details

GrafTech International Ltd. (NYSE: EAF) manufactures graphite electrode products essential to the production of electric arc furnace steel and other ferrous and non-ferrous metals. It has access to low-cost manufacturing facilities, including three high-capacity facilities.

Result Performance for the Fiscal Year Ended 31 December 2021 – (FY21)

• Net sales grew by 10% to $1.3 billion in FY21, compared to FY20, indicating better market conditions. It reported sales volumes of 167 thousand MT in FY21, up 24% YoY, comprising long-term agreement (LTA) volumes of 110 thousand MT and non-LTA volumes of 57 thousand MT.
• Adjusted EBITDA increased to $670 million in FY21 from $659 million in FY20. Full-year growth indicates a rise in volumes and pricing. The Group reported Adjusted EBITDA at $183 million in Q4FY21, up from $176 million in Q4FY20.
• The cash flow from operating activities stood at $443 million in FY21 with free cash flow reported at $385 million and adjusted free cash flow at $456 million. The Group was able to convert 68% of adjusted EBITDA to adjusted free cash flows during the period.

Source: Company Reports, Analysis by Kalkine Group

Key Updates

• The Group has updated that it will release its Q1FY22 on 6 May 2022.
• On 28 February 2022, the company stated that David J. Rintoul plans to retire as Chief Executive Officer and President and as a member of the Board of Directors by the end of June 2022, or such later time as a successor has been appointed.

Outlook

The steel industry has witnessed unprecedented levels of pricing over the past few months along with strong fundamentals of the sector in the near term. The industry is also regularly looking for ways to de-carbonize, which aims to move away from traditional blast furnace production to electric arc furnace steel production. The company is well-established to benefit from these events in FY22 and beyond.

Key Risks

The company’s operations are exposed to the legal, compliance, economic, social, and political risks related to its substantial operations in multiple countries. The business and its selling prices are cyclical, which could impact the bottom line. Fluctuation of foreign currency exchange rates and dependence on the supply of key raw materials also remains potential risks.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period) 

Stock Recommendation:

The stock has delivered a 6-month and 1-year return of ~-7.69% and ~-17.75%, respectively. It is currently trading below the average of the 52-week high price of $14.16 and the 52-week low price of $9.11.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis). The target price so arrived reflects the potential rise of low double-digit (in % terms). In addition, a slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the expectation of an increase in cost, and inflation concerns.

Considering the impressive financial performance and improved outlook, we give a “Buy” recommendation on the stock at the closing market price of $9.59 per share, as of 11 April 2022.

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

GrafTech International Ltd. (EAF) is a part of Kalkine’s Global Fully Charged Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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