William Thomson of Massif Capital presented his in-depth investment thesis on GrafTech (NYSE: EAF) at Wide-Moat Investing Summit 2018.

Thesis summary:

GrafTech is a uniquely positioned graphite electrode producer that is vertically integrated into the petroleum needle coke market, the primary raw material required to make ultra-high power graphite electrodes. GrafTech’s vertical integration allows it to sell electrodes on long-term contracts, 85% of which are five-year contracts signed in the last year at a weighted average price per metric ton of electrode that is more than twice the weighted average price GrafTech received during the last ten years for their electrodes.

Rationalization of the graphite electrode market has resulted in a decrease of 20% of the global production capacity during the previous five years, that when combined with the tight needle coke market, creates a window of opportunity between five and ten years in length, during which GrafTech should generate FCF well in excess of 50% of the recent market cap of the company, the vast majority of which management intends to return to shareholders.

Listen to this session:

slide presentation audio recording

About the instructor:

Will Thomson is a Managing Partner at Massif Capital, a value-oriented investor partnership focused on global opportunities in the small and mid cap space, with special attention given to industrial and commodity-related businesses. He has previous energy and mining related work experience in private equity, credit analysis, insurance and government policy. Massif Capital combines a fundamentals based approach to individual company assessment with in-depth capital cycle analysis to find compelling investment opportunities.