2K HEDGEFUND ANALYSIS

“GrafTech International Ltd is a manufacturer of graphite electrodes, products essential to the production of electric arc furnace (EAF) steel and various other ferrous and nonferrous metals. The Company also produces needle coke products, which are the primary raw material needed in the manufacture of graphite electrodes. The Company is manufactures and provides graphite and carbon materials used in the transportation, solar and oil and gas exploration industries.” — Taken from TradingView

GrafTech International Ltd (EAF) is a very interesting company that we originally found through P/E search and the addition to Mohnish Pabrai’s fund. EAF is currently a massive cash cow that produced just over $745 million in the trailing twelve months prior to our initial purchase. Currently the company is working to pay off almost 2 billion dollars in debt, and used about 24% of the FCF last year to do so. They currently are projecting in returning 50-60% FCF to shareholders through dividends and repurchases. They recently approved the repurchase of around 15% of the public float.

Sitting at a P/E around 4.2 at initial purchase, we believe that EAF is a company that will continue to produce FCF that is advantageous to investors. EAF has long-term take or pay agreements t at an average of $9800/MT from now until 2023, or over 4.5 billion in revenue left. Long term debt sits at ~1.9 billion, which should be able to be covered solely by the current take or pay agreements. This presents as a company that although debt is high, has the ability to pay it off in the near future.

GrafTech International Ltd is a company that we believe is not only solid financial shape, but also has done well to vertically integrate themselves in a growing sector. While prices may not always be at the levels that their current long term agreements sit at, the growth in EAF steel production in countries such as China point to increased sales from GrafTech. We are definitely bullish to the future of GrafTech and believe that it is currently undervalued.

current price target: $23.00