Editor's note: Seeking Alpha is proud to welcome Almira Research as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more »
Editor's note: Seeking Alpha is proud to welcome Almira Research as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more »
GrafTech International (NYSE: NYSE:EAF) re-listed at $15.5 in a period when the price of graphite electrodes had skyrocketed at $24.0k per MT. Later industry oversupply compressed the price to $11. COVID and the potential industry disruption pushed price further down to $7. Mr Market discounts EAF probably because expects pressure on graphite electrodes prices and thus lower profits for the Company. EAF's cyclical nature and leveraged balance sheet further increase uncertainty. Moreover, contract renegotiations highlighted a subdued risk. On the bright side, EAF is a vertically integrated company that generates above 50% EBIT margin with high operational efficiency, impressive cash generation, and minimal capex. In the first two years after the IPO, EAF averaged $1.1bn in EBIT and $760m in FCF.
In Q3FY20, sales decreased to $286m v $420m in Q3FY19 due to lower steel production and impact of the COVID crisis. Net income was $94m v $176m in Q3FY19. CF from operations reduced to $129m from $226m. However, the global steel market has started to recover and management anticipates higher demand in the next quarters. Apparently, graphite electrode demand trails the demand of steel.
A UHP graphite electrode is a highly-engineered and mission-critical industrial consumable. There is no known substitute for graphite electrodes in the EAF method. It takes
