Industry: Metal & Mining
GrafTech International Ltd. (NYSE: EAF) is a leading provider of graphite and carbon material products globally. Operating in the metals and mining industry, the company has been serving customers for more than a century through its highly engineered services. The company was founded in 1886, and currently has graphite electrode manufacturing facilities in Calais, France, Pamplona, Spain, Monterrey, Mexico, and Pennsylvania.
GrafTech became an indirect wholly owned subsidiary of Brookfield Asset Management Inc. in August 2015. The company completed its initial public offering in April 2018 and is currently headquartered in Brooklyn Heights, Ohio. Operations outside the core graphite electrode business include manufacturing graphite by-products and delivery of industrial heat management services. The company mainly serves the metal production, construction, machinery, automotive, appliance, equipment, and transportation sectors.
In fiscal 2021, GrafTech’s net sales increased 10% annually to $1.35 billion. As a result, adjusted earnings moved up 10% to $1.74 per share. Meanwhile, net income decreased to $388.3 million or $1.46 per share from $434.4 million or $1.62 per share in fiscal 2020. Adjusted EBITDA was $670 million, which is up 2%. As of June 30, 2022, the company had cash and cash equivalents of $56 million and total debt of around $920 million.
Strengths & Weaknesses
The strong brand recognition, especially among customers in the automotive and electronic segments, allows the company to sell its products at a premium compared to competitors. The management’s effort to expand beyond the core segments and foray into other areas in the technology sector helps the company enjoy the benefits of a diversified revenue stream.
Continued innovation enables GrafTech to maintain its market leadership position in the electronic instr. and controls industry. Being the first-mover in many categories, the company is able to expand its market share consistently, while the broad product mix allows it to cater to multiple customer segments.
Meanwhile, high costs related to ramping up the supply chain to better align the business with new trends, and investments in the customer-oriented business might put a strain on margins. Also, it might need to take initiatives to safeguard the brand from competitors since the current business model can be easily imitated.
It is estimated that the size of the graphite electrode market would reach $11.36 billion in the next five years, representing a 9.9% compound annual growth rate. The fact that graphite electrode is an essential component for steel production bodes well for companies operating in the sector. After a brief slowdown, the production of steel using electric arc furnaces increased in recent years, a trend that is expected to continue in the near future considering the wide acceptance of the method that is considered environment-friendly. Recovering from a slump, the prices of graphite electrode is picking up, supported by a favorable shift in demand-supply dynamics.
Due to the highly competitive nature of the graphite industry, GrafTech’s market share and sales face pricing pressure and competition from new products, which would demand heavy spending on R&D and marketing efforts. The company’s main competitors include Carbon Race Corp. (OTC: CBRJ) and Hexcel Corporation (NYSE: HXL). While CrafTech managed to stay resilient to the economic slowdown and geopolitical conflict so far, the business could be negatively impacted if the uncertainties persist.
Last month, the board of directors of GrafTech declared a quarterly cash dividend of $0.01 per share, payable on September 30, 2022, to stockholders of record on August 31, 2022. Earlier, the company had appointed Marcel Kessler as president and chief executive officer, to replace David Rintoul. Kessler has also been elected to the board of directors.
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