Kote1995/iStock via Getty Images
Kote1995/iStock via Getty Images
Ferroglobe PLC (NASDAQ:GSM) reported Q4 earnings and gave guidance for 2024. Q4 was nearly double expectations, but the 2024 guidance was considerably weaker if the bottom end of the range is even remotely possible.
Adjusted EBITDA for Q4 came in at $60 million, versus consensus expectations of $37.5 million. This Q4 performance brought adjusted EBITDA to $315 million for the year, beating the guidance held all year and reaffirmed in the fall at $270-300 million.
The quarter's strength came from both Silicon Alloy and Manganese Alloy, which clocked in at $34 million and nearly $24 million respectively, and both outperformed Silicon Metal. They are generally considered the company's lesser businesses. The bulk of the strength in the categories comes from energy compensation from France, which added $186 million of adjusted EBITDA for the year.
The big negative surprise and the reason the stock is down in my opinion is 2024 guidance of $100-170 million. Walking through the big picture numbers, I just can't fathom how $100 million is remotely in play.
The company has stated multiple times that they have taken $180 million of cost out of business since the last industry trough, where adjusted EBITDA bottomed at $30 million. They actually upped that efficiency gain by $40 million, but those efficiencies are tied to sales volumes, so let's ignore them given what the company is saying is a weak revenue backdrop. You're still left with $150 million of adjusted EBITDA, assuming we revisit the worst environment. Instead of $100-170 million, a low of $150 million makes much more sense, unless I'm missing something.
Even if I am missing something, it does not appear that we're approaching that previous trough. If anything, as opposed to last year, where the company said industry trends deteriorated throughout the year, the company stated that Silicon Metal prices bottomed in December at $1.40/lbs and has recovered so far to $1.49.
On top of this early recovery, the company just announced a long-term Silicon Metal supply deal with LONGI, which is one of the largest solar panel manufacturers in the world. The deal is supposed to ramp in the second half of this year. Combining this deal with the math I did above for performance even in the most dire market environment plus the company beating the Q4 guide by a wide margin, and either this guidance is ludicrously low or the company's cost reduction announcements are totally bogus. Either way, it's not a good look for management's messaging ability, something I have criticized in the past.
The company finished the year with about $100 million of net debt. Money came in from France in January that brought the company to a net cash position and allowed final retirement of the secured bonds. This is a milestone that allows capital return to shareholders.
Management is taking baby steps. The initial dividend is $.013/share quarterly. They also discussed initiating a buyback. I think a buyback makes more sense than a puny dividend, but that's just my opinion.
Valuation remains cheap using trough numbers, but honestly I have such low regard for management's guidance and communication abilities I think that valuation should stay low until cash flow overwhelms everything else. I'm going to apply $100 million of cash and $100 million of debt to the valuation matrix below, based on the cash that arrived in January versus the year-end balance sheet showing $100 million of net debt
| Market Cap (@$4.90 | $921 million |
| Debt | $100 million |
| Cash | $100 million |
| Enterprise Value | $921 million |
| EV/EBITDA (using $150 million) | 6x |
This is a cyclical business, and the cycle can turn again. Getting to a net cash position de-risks the company a lot and guidance implies a draconian scenario despite what looks like improving factors, but management's inability to predict its numbers is a concern.
Ferroglobe PLC definitely tests your patience. I think the supply agreement with LONGI is potentially quite good, and I think the environment should likely get better, but when management throws out numbers that make no sense, it's hard to get excited about anything. Frankly, I'd like to see this company sold. I'm tired of this management team.