GrafTech International Ltd

EAF Details

GrafTech International Ltd (NYSE: EAF) is engaged in the business of manufacturing graphite electrode products essential to the production of electric arc furnace steel and other ferrous and non-ferrous metals.

Result Performance for Q4FY21 and FY21 (For the Period Ended 31 December 2021)

• Driven by improved volumes and pricing, net sales increased by 5% in Q4FY21 from the third quarter. In FY21, net sales increased by 10% to $1.3 billion compared to $1.2 billion in FY20 reflecting improved market conditions.
• Sales volume during the quarter increased by 19% YoY and in FY21 sales volume grew by 24% compared to 2020.
• Net income stood at $141 million in Q4FY21 compared to $125 million in Q4FY20. For FY21, the company generated net income of $388 million compared to $434 million in the prior year.
• It has generated cash flow from operating activities of $443 million in FY21 and has further strengthened the balance sheet through lowering debt by $400 million.

Source: Analysis by Kalkine Group

Recent Update

• On 2 February 2022, the board of directors of the company has declared a quarterly cash dividend of $0.01 per share to stockholders, which will be paid on 31^st March 2022.

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 the selling prices of its products are cyclical and that could lead to lower profitability and net losses in the future. Fluctuation in foreign currency exchange rates and dependence on the supply of key raw materials are other potential risks.

Outlook

EAF’s average non-LTA graphite electrode price rose 10% sequentially in Q4FY21 from Q3FY21 and the company expects further increase in average non-LTA prices for graphite electrodes delivered and recognized in revenue in Q1FY22 by 17-20% over Q4FY21. The company also anticipates rise in cost in 2022 driven by recent global inflationary pressures, particularly for third-party needle coke, energy and freight. EAF’s focus in 2022 will remain on investing in its business, as well as strengthening its balance sheet and opportunistic purchases under the balance $159 million stock repurchase authorization.

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 been valued using an EV/Sales multiple-based illustrative relative valuation and 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 basis) considering the expected rise in cost in 2022 as well as associated risks. However, the industry is continuing to look for the ways focused towards de-carbonize as well as many of these efforts are focused towards transitioning from traditional blast furnace production to electric arc furnace steel production. EAF could benefit from these events moving forward.

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.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of US$9.310 per share (Time: 10:22 AM, NY, USA) on 24^th February 2022.

GrafTech International Ltd (NYSE: 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