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.

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

• Net sales stood at $1.3 billion in FY21, up 10% YoY, indicating better market conditions. It reported solid 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. Adjusted EBITDA stood at $183 million in Q4FY21 versus $176 million in Q4FY20.
• The cash flow from operating activities stood at $443 million, free cash flow reported at $385 million and adjusted free cash flow stood at $456 million and 68% of adjusted EBITDA converted to adjusted free cash flow.

Source: Company Reports, Analysis by Kalkine Group

Outlook:

The steel industry has reported unprecedented price volatility in the past 12 months. While pricing has retreated recently, it remains well above historical levels, and the near-term fundamentals in the steel industry remain robust. More broadly, the industry is regularly looking for ways to de-carbonize. These efforts aim 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 lead to lower profitability and net losses in the future. 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 ~-11.19% and ~-16.94%, respectively. It is currently trading below the average of 52-week high price of $14.165 and the 52-week low price of $9.58.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis). The target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to peer average EV/Sales multiple (NTM) (Peer Average), considering the expectation of an increase in cost, particularly for third-party needle coke, energy, and freight that could pressure its net income.

Considering the traction in volumes and improved outlook, we give a “Buy” recommendation on the stock at the closing market price of $9.76 per share, down 0.81% as of 8^th February 2022.

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.