Author Topic: EAF - GrafTech  (Read 2421 times)

chrispy

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Re: EAF - GrafTech
« Reply #10 on: December 06, 2018, 05:24:41 AM »
Today is the ex dividend date for the 0.7$ dividend. May that be part of it?


peterHK

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Re: EAF - GrafTech
« Reply #11 on: December 06, 2018, 09:35:00 AM »
The dividend is some of it. Also remember that this trades with China and steelmaking (very high correlation to Iron Ore and Met Coal, even though those aren't used in EAF steelmaking...), and it has a very low float so it's easily pushed around.

I think it's a bargain here, but it's a large enough position for me so I'm not going to add more just for risk control reasons.

bjakes00

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Re: EAF - GrafTech
« Reply #12 on: December 06, 2018, 02:05:25 PM »
It's so cheap it makes you completely doubt your thesis...on the Massif capital numbers, next 5 year contracted FCF is 62% of current EV? Nevermind any kind of terminal value or the other third of the business (going to 25% once management puts new take-or-pay contracts in place) that is still very healthy but based on spot prices.

Makes you wonder how Brookfield is going to sell down - my best guess is that they have a $20 floor price on any future selldowns they do.


valueinvestor

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Re: EAF - GrafTech
« Reply #13 on: December 06, 2018, 02:57:22 PM »
Who knows what's Brookfield's game plan is on this one, but they are motivated to see this trade well.

I've bought some more for the possible bump back, because the only real risk is that their customers cannot pay and there's a liquidity issue with the company because they do have a decent chunk of debt.



peterHK

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Re: EAF - GrafTech
« Reply #14 on: December 06, 2018, 04:08:19 PM »
I have the trading down to the float. I think the market is just missing the cash flow story and management sort of shot itself in the foot the last conference call.

As for BAM's strategy, look at the buyback vs. dividend decision. Secondaries above $20, dividends to release cash without BAM selling their stake below $20. I think that outlines what they think intrinsic value is fairly clearly.

BG2008

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Re: EAF - GrafTech
« Reply #15 on: December 06, 2018, 06:49:09 PM »
GrafTech reminds me of Awilco Drilling a lot. Contracts in place.  The difference is that the GrafTech assets likely won't depreciate the way that the semi submersibles will.   

BG2008

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Re: EAF - GrafTech
« Reply #16 on: December 06, 2018, 06:52:33 PM »
The secondary at $20 is very telling of what they think the value is.  Granted, if you own a very large chunk of a company, you manage position size and start selling earlier than if you owned a 2% position or just a smaller % of the entire company. 

heth247

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Re: EAF - GrafTech
« Reply #17 on: December 06, 2018, 08:33:58 PM »
So this is selling below the IPO price now?

In the VIC write up, comments section, somebody mentioned that those take-or-pay contract cannot always be forced and has room to negotiate. Is this true?  (Somehow I can only view part of the comments in VIC, not all).  I think this is  critical because the contracted revenue is basically where the margin of safety is.

Spekulatius

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Re: EAF - GrafTech
« Reply #18 on: December 07, 2018, 04:14:02 AM »
So this is selling below the IPO price now?

In the VIC write up, comments section, somebody mentioned that those take-or-pay contract cannot always be forced and has room to negotiate. Is this true?  (Somehow I can only view part of the comments in VIC, not all).  I think this is  critical because the contracted revenue is basically where the margin of safety is.

Based on what I have seen with drilling rigs, contracts ended up sometimes not getting enforced and renegotiation was occurring. I am guessing it depends on the balance of power between the customer and the supplier, the financial health of the customer (if he canít pay, he wonít) and how the contracts are written. For example with Chinese customers, I always would be worried about them just bailing out, if they are unfavorable. Then they have to be sued  in a chinese court - good luck!
To be a realist, one has to believe in miracles.

valueinvestor

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Re: EAF - GrafTech
« Reply #19 on: December 07, 2018, 08:33:09 AM »
So this is selling below the IPO price now?

In the VIC write up, comments section, somebody mentioned that those take-or-pay contract cannot always be forced and has room to negotiate. Is this true?  (Somehow I can only view part of the comments in VIC, not all).  I think this is  critical because the contracted revenue is basically where the margin of safety is.

Based on what I have seen with drilling rigs, contracts ended up sometimes not getting enforced and renegotiation was occurring. I am guessing it depends on the balance of power between the customer and the supplier, the financial health of the customer (if he canít pay, he wonít) and how the contracts are written. For example with Chinese customers, I always would be worried about them just bailing out, if they are unfavorable. Then they have to be sued  in a chinese court - good luck!

Well if the thesis was based on contracted cash-flow without any consideration to quality of the business, then it may not be prudent to invest in such an idea. What I see with Graftech is that it is a business that it is a high-quality and defensive business. The spot price is already 50% above the contract price, and typically, prices go down by 50% during a recession.

In order for Graftech to not make a net income, conservatively, spot price has to be at ~$4500.00. While the contracted price is ~10 000.00 (where they make ~40%+ net profit margin), and current spot prices are around ~$15K. So if a 50% decline does come, then it does not affect Graftech. This does not factor any future growth.

Lastly, Graftech does not supply to China.

However, Spekulatius is right in a way that contract for the most part is enforceable, when there's an ability to fulfil one's obligation, but once the ability is gone, then... it's a different story.

My fear is the debt, where cash-flow required for the liabilities may not be sufficient during a down-turn. Hence, the position-sizing.