Time to Reassess the entire GE Story .
What Goes up comes down !! Its an age old saying and quite apt looking at the current fall in price of GE stocks. But why such a fall ?
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In my view the key highlights over the last three months
Increase in Supply of Needle Coke as per Heg Mgmt in the Conf calls. One of the key reasons for the rise in price realization for GE was the limited supply of NC. As the supply is increasing and hence this means GE producers can produce more either through higher Utilization or Brown Field Capacities
Expansion Plans underway :
Heg Mgmt announced a plan to add 20K capacity, while the news was going around for almost a
year or so but this time it came with a concrete plan. As per the Mgmt , they will go ahead with
expansion only post they had confidence of NC supply
News of Big time China expansion in GE - As per the recent news and also from Grafftech Conf, there are news that this is going to happen sooner than expected. China is a black hole but it controls the entire GE market , no matter what people say about UHP production etc
Additional Supply from Other Big Players - If we analyse the last qtr supply of GE from big players like Grafftech, Showa Denko etc each of them has produced higher numbers . It also means that NC supply is improiving
Heg Buyback - This was the last nail in the coffin, why would anyone like to buyback 2% - 3% at /. They could have easily bought the stock from the Market at odd or so ( Tentative price at the time of announcement) . If we look at level 2 thinking, something looks fishy here
International GE Stock Prices - To me Grafftech prices movement told us that Market knew something that we don’t. Grfftech almost halved in a months time , now stocks dont go down so much only on rumours
To sum it, the risk-reward ratio is not in favour of Investors anymore. At best, we may see another 20% rise in stock prices from here due to Q3 numbers . But again I do not see GE prices at USD/tonne anymore . It may not come down to Usd but it may be a slow downward slide for sometime after which it comes down drastically.
I would be happy to leave the 20% to the Markets and be better safe than sorry.
As we say , best time to buy a commodity stock is at High PE and best to exit is at Low PE . In my view this is lowest TTM PE that GEs will have.
Disclaimer : Have exited all my GE positions over the last month or so. Views may be biased so pls make your own opinion.
Both HEG and Graphite stock prices have corrected to 40-50%. Graphite is struggling with pollution issues raised in Karnataka and has to stop production in that particular plant. Both are trading at 3-4 PE from historical earning. Short to medium term correction is earning is expected for both players due to correction in graphite electrode prices and increase in raw material cost. I am holding Graphite. However because of the production shut down and other aspects, contemplating to switch to HEG. Graphite on the other hand has production available in Germany as well. Can some throw light on - If it make sense to switch to HEG from Graphite at current price of these stocks
The Audit Committee and Board of Directors in their respective meetings held today have
considered and approved the proposal to increase the stake of BEG Limited (“BEG”) in
Bhilwara Energy Limited, an Associate Company of BEG, from 29.48% to 49%. Details are below.
Also @jaman_valuepickr: I don’t quite understand. Mostly because I have not seen many buybacks in my life. Does this mean that the promoters sold their buyback eligible numbers at /- to the company? Why on earth would they do that when the public share price is /-? Should we read anything to this at all?
Graftech announced its CY Q1 earnings yesterday. A conf. call was organised yesterday as well.
The transcript can be accessed here.
https://finance.yahoo.com/news/graftech-international-ltd-eaf-q1-.html
The earnings presentation is here:
My analysis of earnings and what to expect from GI/HEG is as follows:
Putting all of this together:
The UHP pricing should result in high sales for GI/HEG. HEG has a 80/20 split when it comes to UHP vs HP. HP pricing is down 40% (as per the last conf. call) resulting in a 8% hit to top-line. UHP Spot pricing has reduced compared to last year, but from an absolute standpoint, it is still high. Needle coke costs have gone up, so margins should be impacted. (Graftech is vertically integrated and has its own needle coke manufacturing setup which HEG/GI don’t. Impact should be higher for HEG/GI)
While Graftech sells 2-2.5 times more electrodes than GI, when it comes to valuations, Graftech has a negative book value and debt of $2B ( crores) and a market cap of crores taking EV to crores. Compare that to GI, which has a market cap of crores, no debt, and cash totalling at-least crores. (On the flip side, Graftech has its own needle coke manufacturing setup and long term pricing contracts that ensures stable cash flows)
While GI/HEG’s margins will be impacted in Q4 FY , the UHP GE story is not over yet. By the time, margins compress further, GI/HEG should be able to generate enough cash flows, that should allow them to diversify and drive more value for its shareholders. (Companies can diversify into other carbon businesses like Carbon Black or EV lithium Ion batteries, which HEG had alluded to sometime last year)
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Disclosure: Have been purchasing GI shares over the last few days, views may be biased.
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Look inside any major steel mill or metal smelter globally, and you’ll find graphite electrodes hard at work. Even with technological advancements, graphite electrodes have been indispensable in these types of facilities for years.
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