Ferroglobe analysis: Cutting-edge technology and insane growth. Can this continue?

Ferroglobe had been struggling for a while and was pretty inconspicuous. But the latest results released have caused a 20% rise in the share price and a wave of investor interest. What happened?

A basic overview

Ferroglobe is a global company based in Spain, specializing in the production of metal alloys and ferroalloys. These are alloys of iron and other elements such as silicon, aluminium or magnesium, which are used in the production of steel and other metals. The company was formed in 2015 through the merger of FerroAtlántica and Globe Specialty Metals. Ferroglobe currently has offices and production facilities in 20 countries and employs approximately 4,500 people.

Ferroglobe has an extensive product portfolio, including the aforementioned metal alloys, graphite electrodes and other products for various industries. The company also has research and development centers that help develop new technologies and innovations. In recent years, Ferroglobe has faced several challenges. These include a decline in steel demand affecting the demand for their products, high energy and raw metal costs, and competition from other manufacturers. These factors can have a negative impact on the company's performance.

In 2020, Ferroglobe's total market turnover was €1.1 billion and the loss was €310 million. However, the company showed some recovery in the last quarter of 2020, when its results improved.


Ferroglobe $GSM-1.0% reported a fourth quarter that was much better than expected. Adjusted EBITDA was $130 million versus consensus estimates of $81 million. Earnings per share were $42, down from the third quarter, but a favorable result compared to last year's fourth quarter of $19.

After the results were released, there was a huge jump

Full-year numbers came in a bit lower than where the company was headed at the beginning of the year, but the numbers are still ridiculous given the valuation. Adjusted EBITDA was $860 million and adjusted earnings per share were $3.07. On an EV/EBITDA or P/E basis, the company is worth about 1.5 times.

Not everything is so rosy, however. The argument, of course, is that 2022 was a once-in-a-generation year, and the normalized numbers will be much lower. The other argument is that the company hasn't generated anywhere near $860 million in cash and hasn't yet returned meaningful capital to shareholders.

Company fundamentals

The company has set an adjusted EBITDA target of $270-300 million for 2023. But how can EBITDA be less than US$300 million given that prices are holding up relatively well (over US$2 per pound of silicon in Europe), the reopening of European customers and inventory destocking, US$130 million of EBITDA in Q4 and higher than originally planned cost savings. Cost savings alone will be $225 million in 2023.

Indeed, the company did not answer any of the questions about the seemingly impossibly low EBITDA for 2023. This suggests that Q1 EBITDA will indeed be low. According to analysts, even only maybe $75-80 million.

I was also intrigued by another thought - if we take the midpoint of the outlook as the actual number for this year . At an enterprise value of $1.15 billion, the company is only behind 4x. This valuation doesn't take into account another important thing about this company: that this company has $705 million tied up in working capital. After deducting it, the company is trading at barely 1X EBITDA.

The company expects to release about $100 million of that capital (mostly inventory) this quarter. Combine that with the $323 million of cash that is already on the balance sheet, and the company will be in a pretty good position to pay off its bonds that mature in July, which the company has already tried to buy. Once those bonds are called, the company will be able to return cash to shareholders.


The biggest risks to this company are volume and price. We are still at healthy levels for all of their refined products. If prices were to fall while volume was weak, it would obviously hurt margins. And that's not all.

Fluctuations in metal raw material prices: Ferroglobe needs metal raw materials such as silicon and aluminium for its production. These raw materials are price volatile and could affect the company's production costs and profitability if prices rise significantly. Exactly as I mentioned.

Demand for alloys: The demand for these products is heavily dependent on the demand for steel and other metals used in industrial production. A drop in demand could have a negative impact on Ferroglobe's sales and results.

Competition: Ferroglobe operates in a competitive industry and has to deal with competition from other producers.

Changes in regulation: Ferroglobe must comply with various regulatory requirements relating to environmental protection and working conditions. Changes in these regulations may adversely affect the Company's performance.

Market Losses: Ferroglobe seeks to expand its product portfolio and develop new technologies, but unsuccessful projects or market losses could have a negative impact on the company's profitability.

After a quick DD, I agree with most other analysts. The company may be a bit unable to gauge its potential and management seems a bit uncertain. Even if that is the case, the company is in a strong liquidity position and the valuation is so low that any good news should hopefully be growth oriented.

Analyst estimates are very positive. I would go so far as to say unrealistic. Source

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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