Energizer Holdings, Inc.

ENR Details

Energizer Holdings, Inc. (NYSE: ENR) is one of the leading primary batteries and portable lighting products globally. Its key global brands include Energizer, EVEREADY, Rayovac, and VARTA.

Result Performance for the Third Quarter Ended 30 June 2021 (Q3FY21)

• The company has registered a net sales growth of 9.7% YoY to $721.8 million in Q3FY21 owing to higher auto care demand in both geographical segments.
• Increased operating costs and a lower margin rate profile of its auto care business dragged the gross margin in Q3FY21.
• The reported gross margin reduced to 37.9% in Q3FY21 from 40.0% in Q3FY20. The adjusted gross margin decreased by 160 basis points to 39.2% in Q3FY21.
• It has reported earnings per share of $0.24 in Q3FY21, including a $0.27 per share loss on extinguishment from debt refinancing. At the same time, the adjusted earnings per share grew by 48% YoY to $0.74 in Q3FY21.

Financial Snapshot (Source: Company Reports)

Outlook

The company has raised its FY21 outlook for net sales growth to 8-9% from 5-7% earlier, owing to distribution gains, higher demand, and favourable currency effects. However, it has reaffirmed its outlook for adjusted earnings per share of $3.30- $3.50 and adjusted EBITDA of $620-$640 million.

The company expects its adjusted gross margin rate to reduce by 80-110 basis points in FY21 compared to the prior year due to the impact of sustained inflationary cost pressures. However, this is likely to be offset by further strides towards product management, synergies, and the effect of favourable currency. Further, it estimates its adjusted free cash flow to surpass $225 million in FY21.

Key Risks

The company is exposed to the risk of currency fluctuations, which may adversely hurt its financial performance. In addition, volatility in production costs, primarily the raw material prices, could erode its profit margins. Further, the risk of changes in the retail environment and consumer preferences also remain a significant concern. Moreover, it faces the risk of supply chain disruption due to its reliance on certain essential suppliers.

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 is trading lower than the average of the 52-week high price of $52.8499 and the 52-week low price of $36.99, which indicates a good opportunity for accumulation.

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 premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering a better current ratio at 1.70x in Q3FY21 versus the industry median of 1.40x and a higher fixed asset turnover ratio 1.49x in Q3FY21 versus the industry median of 1.36x.

Considering the higher battery demand, along with steady organic solid growth and decent outlook, we give a “Buy” recommendation on the stock at the closing market price of $39.26 per share, down by 0.53% as of 7^th October 2021.

GrafTech International Ltd.

EAF Details

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

Result Performance for the Second Quarter Ended 30 June 2021 (Q2FY21)

• Driven by 39% YoY and 16% QoQ growth in sales volume to 43 thousand MT in Q2FY21, net sales grew by 17.8% YoY to $330.75 million. Production volume rose 22% QoQ and 33% YoY to 44 thousand MT.
• Adjusted EBITDA grew by 6% YoY to $160 million with an adjusted EBITDA margin of 48%.
• Net income stood at $28 million, including a one-time change in Control charges (pre-tax) of $88 million. However, adjusted net income stood at $114 million.

Income Statement (Source: Company Reports) 

Recent Update

• On 7 October 2021, the company stated the resignation of Jeffrey C. Dutton from its Board of Directors and the appointments of Debra Fine, Jean-Marc Germain, and Henry R. Keizer to the Board as independent directors.
• On 6 October 2021, the company will hold a Q3FY21 Conference Call and Webcast on 5 November 2021 at 10:00 a.m. (EDT).
• On 23 September 2021, the company published its second annual Sustainability Report highlighting annual environmental, social, and governance (ESG) performance and initiatives.

Outlook:

Continued improvement in the global steel market has enabled the company is reporting strong performance across key metrics in Q2FY21 both sequentially and year-over-year. Due to the continued recovery in the industry in FY21, the company anticipates a positive impact on the business. In addition, in Q2FY21, the company has enhanced its production capabilities to cater to the rising customer demand due to the growth in the graphite electrode market. As a result, the company expects further improvement in reported non-LTA pricing in 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. In addition, the business and its selling prices are cyclical and could lead to lower profitability and net losses in the future. Fluctuation of foreign currency exchange rates and dependence on the supply of critical 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 6-month and 9-month returns of ~-13.70% and ~-10.1%, respectively. It is currently trading near the average of 52-week high price of $14.165 and the 52-week low price of $5.87.

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). The company might trade at a slight discount to its peers’ average, considering its reduced cash flow from operations in Q2FY21 as well as a significant decline in ROIC at 2.4% in Q2FY21 versus 7.1% in Q2FY20.

Considering the traction in volumes and improved outlook, we give a “Buy” recommendation on the stock at the closing market price of $10.33 per share, up 2.08% as of 7^th October 2021.

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

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.