Focus On Silicon Metal For EV Batteries Will Strengthen Future Market Position

Key Takeaways

• Antidumping duties and investigations may enhance Ferroglobe's market share and competitiveness, boosting revenue and margins.
  
• Focus on silicon metal developments for electric vehicles positions Ferroglobe for future growth and increased profitability.
  
• Global trade uncertainties, low-priced imports, and higher energy costs create risks for revenue, margins, and operational efficiency, challenging profitability and earnings stability.

Catalysts

Produces and sells silicon metal, and silicon and manganese-based ferroalloys in the United States, Europe, and internationally.

• Upcoming antidumping and countervailing duties in the U.S. against Russia, Malaysia, Kazakhstan, and Brazil are expected to reduce low-priced imports and improve market conditions for Ferroglobe, potentially increasing revenue and margins as they capture more market share.
  
• In Europe, ongoing safeguard investigations into imports of silicon metal, silicon-based alloys, and manganese alloys could benefit Ferroglobe as local production becomes more competitive, potentially boosting revenue and earnings.
  
• The anticipated bottoming out of market demand and the predicted growth in steel production, particularly in Europe and North America, can drive higher volumes and enhanced pricing for Ferroglobe's products, positively impacting revenue.
  
• The implementation of Sales and Operation Planning (S&OP) tools is expected to improve operational efficiency, reduce working capital, and result in cost benefits, thus improving net margins and cash flow.
  
• The company's focus on developing advanced uses for silicon metal, particularly for electric vehicle batteries, positions it well for future growth in this segment, potentially increasing revenue and profitability from new market opportunities.

Ferroglobe Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferroglobe's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 5.9% in 3 years time.
• Analysts expect earnings to reach $106.2 million (and earnings per share of $0.56) by about April 2028, up from $5.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, down from 123.7x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.98%, as per the Simply Wall St company report.

Ferroglobe Future Earnings Per Share Growth

Risks

• Changing global trade policies and potential tariffs create significant uncertainty in future market conditions, potentially impacting future revenues and net margins.
  
• The company's exposure to low-priced imports in Europe and the temporary postponement of purchasing decisions by solar customers due to tariff uncertainties could depress volumes and negatively affect revenue.
  
• Higher energy costs and production idling, particularly in France, led to increased costs, which could continue to pressure EBITDA and net margins if not managed.
  
• The recent decline in prices for key products such as silicon metal, manganese alloys, and silicon-based alloys impact revenue and reduce adjusted EBITDA, as observed in the Q4 earnings.
  
• The decision to idle operations temporarily due to low demand, particularly in Europe, can decrease production volumes and capacity utilization efficiency, potentially affecting future earnings stability and profitability.

Valuation

• The analysts have a consensus price target of $9.0 for Ferroglobe based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $106.2 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 9.0%.
• Given the current share price of $3.45, the analyst price target of $9.0 is 61.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.