SGL Carbon - Not yet positioning

All,

Please find our updated analysis on SGL Carbon here.

- We are not yet sure how / if to position ourselves. SGL’s significant exposure to the Automotive industry will make it subject to politics around US automotive import tariffs, which have only just been postponed. The bonds price in the negative cashflow over the next year and are expensive to short here against an overall yield-hungry market and without a specific short term trigger in sight. Away from political uncertainty in either direction, the risks to our projections appear skewed to the downside, but there is limited data to drive projections accurately.

- On projections not far from the company’s own, SGL Carbon should be using all its cash on balance sheet over 2020 and take on over 1x turn of leverage.

- The significant - undrawn - RCF however guarantees sufficient liquidity and is likely large enough to cover the Q420 Purchase Price Liability of E52m.

- This should bring the company close to its RCF covenants by year end 2020, but not necessarily breach them.

- The slow planned conversion of its Portuguese facility towards precursor and other higher value-added products does not fill us with confidence that the company will turn its front-end around over the nest years idiosyncratically.

- Ultimately SGL Carbon remains in the hands of strong shareholders, should it come to financial stress - although they will likely be reactive and the stress will come before any action.

We will give it more thought in the coming weeks.

Wolfgang