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 First Quarter Ended 31 March 2022 – (Q1FY22)
- Net sales stood at $366 million in Q1FY22, up 20% YoY, primarily due to solid sales volume and improved pricing. Sales volume stood at 43 thousand metric tons (MT), up 16% YoY, contributed by 25 thousand MT of volume derived from take-or-pay agreements and 18 thousand MT of non-LTA volume.
- Adjusted EBITDA stood at $170 million, up 9% YoY, with an adjusted EBITDA margin of 46%.
- Net income stood at $124 million in Q1FY22 (up 26% YoY), or $0.47 per share, versus $99 million, or $0.37 per share in Q1FY21.
Source: Company Reports, Analysis by Kalkine Group
Key Updates
- On 12 May 2022, the company announced that its Board decided on a quarterly cash dividend of $0.01 per share to be paid to stockholders as per the record date of 31 May 2022 and payment date of 30 June 2022.
Outlook
The company anticipates strong steel industry performance soon, driven by solid capacity utilization rates, especially in North America. Further, the industry’s decarbonization efforts will drive demand for graphite electrodes. Additionally, it is anticipated that demand for petroleum needle coke will continue to expand further due to its use in lithium-ion batteries for the fast-growing electric vehicle market. The company is well-positioned to benefit from favourable industry trends through 2022 and beyond.
Guidance: Estimated LTA volume to stay between 90-100 thousand MT and estimated LTA revenue between $860-$960 million in FY22. However, the estimated LTA volume is between 40-50 thousand MT, and the estimated LTA revenue is between $400-$500 million from FY23 through FY24.
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 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, particularly for third-party needle coke, energy, and freight that could impact 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 $8.68 per share, down 2.47% as of 31 May 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.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.