Graanul - comment

The 5pt drop in Graanul bond price reflects the realisation that refinancing isn’t imminent.  The Company presentation yesterday highlighted the macro factors, which remain favourable for the wider industry but we still can’t look past the customer concentration risk. Graanul’s top 3 customers account for 79% of sales over the last 5 yrs and are contracted for the next two years, but only one of these customers has contracted beyond FY26.

Drax, Graanul’s main customer, also owns wood pellet production facilities in North America, and we question how long the relationship will remain fruitful to both parties. Drax, and others, have boosted production in anticipation of increased demand which has led to a rise in inventory across the industry and dampened price levels.  Overall demand from European energy producers, who will replace coal-fired power with renewables, including wood pellets, should increase due to regulatory pressures. However, progress is slow, and Graanul needs to refinance its bonds in continued uncertainty.