GrafTech International Ltd.

EAF Details

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

Result Performance – For the Second Quarter Ended 30 June 2021

• Increased Revenue: Revenue stood at $330.75 million, up 17.8% YoY, led mainly by improved sales volume by 16% QoQ and 39% YoY. Production volume grew 22% QoQ and 33% YoY
• Adjusted EBITDA grew by 6% YoY, to $160 million and adjusted EBITDA margin stood at 48%
• Net income stood at $28 million, including one-time Change in Control charges of $88 million, and adjusted net income stood at $114 million
• As of June 30, 2021, the cash and cash equivalents stood at $114 million and total debt was ~$1.2 billion.

Key Data (Source: Company Reports) 

Risks

The facilities and operations of the company are widely exposed to federal, state, local, and foreign environmental laws, and regulations. Further, the COVID-19 pandemic has had and is anticipated to have, an adverse impact on the business, results of operations, financial position, and cash flows of the company. The business is cyclical, and the selling prices are volatile.

Outlook:

The management of the company is seeing an improvement in the global steel market, backed by the robust sequential and year-over-year performance across key metrics. The company is well supported by the industry’s extended recovery for the remainder of the year and the positive anticipated impact on the business going forward. Meanwhile, the company continues to expect to see improvement in reported non-LTA pricing in the second half of 2021 and into 2022. Moreover, the company is well-positioned for success in this improving market.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period).

Stock Recommendation:

The stock declined by ~15.3% in 6 months. It has made a 52-week low and high of $5.87 and $14.165, respectively.

The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering reduced ROIC at 2.4% in Q2FY21 versus 7.1% in Q2FY20 as well as the risks associated with the business.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $10.73 per share, up by 0.56% on 17^th August 2021.

Plug Power, Inc.

PLUG Details

Plug Power, Inc. (NYSE: PLUG) is focused on green hydrogen (hydrogen fuel produced using renewable resources and electrolysis) and fuel cell solutions used to power electric motors primarily in the electric mobility and stationary power markets.

Result Performance – For the Second Quarter Ended 30 June 2021

• Increased Revenue: The company shipped 3,666 GenDrive units and had revenue associated with 16 hydrogen infrastructure systems for Q2FY21 versus 2,683 GenDrive units and 4 hydrogen infrastructure systems in Q2FY20. Net revenue stood at $124.6 million, up 83% YoY
• Gross billings stood at $126.3 million in Q2FY21, up 75% YoY
• Net loss attributable to common stockholders stood at -$99.63 million in Q2FY21 as compared to -$9.41 million in Q2FY20

Key Data (Source: Company Reports)

Recent Update

• As per the release dated 10 August 2021, the company shared the development of a green hydrogen production plant in Camden County, Ga. that is expected to produce 15 tons of liquid green hydrogen per day. By investing $84 million into the facility, the company is driving its commitment to establish the first North American green hydrogen supply network.

Risks

The products and performance of the company depend mainly on the availability of hydrogen gas and a lower supply of hydrogen could negatively impact the sales and deployment of products and services. Further, the company is dependent on certain third-party key suppliers for components used in the products. Also, the company is exposed to volatility in commodity prices.

Outlook:

The company launched HYVIA, Renault Group, and Plug Power’s joint venture, to focus on hydrogen mobility solutions with a target of 30% market share in hydrogen-powered light commercial vehicles in Europe by 2030. Further, it extended its execution on the green hydrogen generation network in North America, as it stated plans to build a 15 tons per day green hydrogen plant in Camden County, GA. Also, the company stated a strategic partnership with BAE Systems to develop hydrogen-powered electric buses.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period).

Stock Recommendation:

The stock posted rose by ~12.5% in 9 months. It has made a 52-week low and high price of $10.56 and $75.49, respectively.

The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering lower asset turnover at 0.02x in Q2FY21 versus an industry median of 0.19x, and a longer cash conversion cycle at 126.3 days in Q2FY21 versus an industry median of 79.6 days.

Considering the aforementioned factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $25.870 per share, up by 3.07% on 17^th August 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.