SGL Carbon - model update and comments on the 2H 20 results

All, 

SGL’s reinstated guidance after the 1H 20 results suggests the business is finally regaining some degree of visibility. The preliminary assessment of the new CEO, as presented in the call, appears both honest and accurate. It is a necessary departure from SGL’s past track record of over promising and under delivering. However, as it is often the case in European companies, the good words and intentions on restructuring may not be matched on the implementation phase, as labor laws and politics play their part to slow the process. With SGL’s track record of negative FCF after interest, we remain cautious for now on the bonds and the converts – it is still too early to assess how a turnaround could work in practice.

However, SGL’s meaningful liquidity reserves, under its EUR159m of cash reserves and the mostly undrawn EUR175m RCF, should allow the company another try for an effective restructuring. The EUR53m purchase price liability maturing in 2020 is likely to be extended. And we see a covenant breach under the RCF as likely to be waived given SGL’s strong shareholder support, banking relationships and the current context of coronavirus-motivated extensions/waivers.

Please find our updated model here.

Feel free to reach out if you would like to exchange ideas on the name.

Juliano