Hedge Funds Buying GrafTech International Ltd (GTI)

Several hedge fund managers newly purchased shares of GrafTech International Ltd (NYSE:GTI), including Peter Schliemann of Rutabaga Capital Management, Peter Muller of PDT Partners and Israel Englander of Millennium Management. Among other shareholders are Chuck Royce’s Royce & Associates (the third largest shareholder, owning 11.9 million shares or a 9% stake), Mario Gabelli’s GAMCO Investors and John Overdeck and David Siegel’s Two Sigma Advisors.

MILLENNIUM MANAGEMENT

GrafTech International is a $1.4 billion market cap company that manufactures a broad range of graphite electrodes, which are products essential to the production of Electric Arc Furnace (EAF) steel and various other ferrous and nonferrous metals. It also produces needle coke products, which are the primary raw material needed in the manufacture of graphite electrodes. As the only major producer of graphite electrodes that is vertically integrated, GrafTech International Ltd (NYSE:GTI) can provide high quality products at a low cost and leverage its research and development into developing engineered solutions for its higher growth end markets, which include electronics, chemicals, aerospace and transportation.

The stock rallied sharply in late October 2013 after the company reported better-than-expected third quarter earnings and announced a rationalization plan that would shut down two of its highest cost graphite electrode plants by the end of the second quarter of 2014, and reduce its global workforce by 600 people (or 20%). Financially the plan aims to achieve $75 million of annual cost savings ($50 million of which will be completed in 2014) and improve cash flow by $150 million ($75 million in each of 2014 and 2015). For 2014, management expects EBITDA of $150-180 million (versus $144 million in 2013) but sees its peak potential at $500-600 million as industrial materials rebound, engineered solutions grow and cash flows improve. Operating cash flow for this year is projected to be $130-160 million (versus $117 million in 2013), a portion of which will be used for share buybacks (there are 10 million shares remaining on its current repurchase authorization, or 7% of its common shares outstanding) while the balance will be reinvested in the business as well as used to fund acquisitions.

In late January 2014, an investor group led by Nathan Milikowsky, a former director of GrafTech International Ltd (NYSE:GTI) who was ousted, disclosed a 5% stake in the company and nominated five members (including himself) to the board. Given the plan management has already put forth to improve its profitability and cash flow, it is not clear how much more can be accomplished by Milikowsky, whose personal history with the company can be both a positive (in terms of his familiarity with its inner workings) and a negative (as his agenda can be construed by some to be not totally aligned with shareholders).

Reflecting its improving prospects, GrafTech International Ltd (NYSE:GTI) trades at a forward EV/EBITDA multiple of 12.4X, a modest premium to the peer group median of 11.2X. Given the approximate 300 basis point negative difference between the EBITDA margins of GrafTech’s and its peers, any narrowing of this gap would provide a boost to the stock’s valuation. Furthermore, if the company demonstrates progress towards its peak EBITDA, which is three to four times current levels, both estimates and the multiple applied to them would increase meaningfully.

Disclosure: none

Recommended Reading:

Mark Lampert, Biotechnology Value Fund Up Stake In Cytokinetics, Inc. (CYTK), Reduce Exposure To Regado Biosciences Inc (RGDO)

Hedge Funds Are Fond of Era Group Inc (ERA)

CST Brands Inc (CST): Another Spin-Off Favored by Hedge Funds

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!