SGL Carbon, a German chemical company specializing in graphite, carbon fibers, and composite materials, often flies under the radar of mainstream financial analysis. But a closer look at their recent Q1 2024 earnings call transcript reveals a story that may be more explosive than anyone realizes – a potential semiconductor gold mine hiding within its Graphite Solutions (GS) business unit.

The company has been quietly building an empire within the semiconductor space, particularly focusing on the burgeoning silicon carbide (SiC) market. While the overall semiconductor market has shown signs of slowing, SGL Carbon’s SiC component sales have bucked the trend, growing by a staggering 33% year-on-year in Q1 2024. This growth comes on the heels of similar explosive expansions in previous years, with 48% and 44% growth in 2023 and 2022, respectively.

But here’s where things get truly interesting. The transcript reveals that SGL Carbon has been strategically leveraging customer down payments to fuel this silicon carbide expansion. They've accumulated a hefty €100 million in down payments over the past few years, effectively using their customers' capital to build a massive capacity increase. And this expansion, according to the transcript, is just getting started. The company's St. Mary’s plant in the U.S., a key driver of future SiC capacity, won’t be fully operational until the end of 2025, with sales fully hitting the books in 2026.

SGL Carbon: Key Financial Data

Reference: SGLFF Financial Data

Projected Semiconductor Sales Growth

The following chart, based on existing contracts, illustrates SGL Carbon's projected growth in semiconductor sales, with a particular focus on the SiC market.

Now, let’s delve into some numbers. SGL Carbon’s mid-term guidance for 2028 paints a very optimistic picture. They are aiming for €1.6 billion in sales with EBITDA between €300 million and €330 million. This represents a compound annual growth rate (CAGR) of 8% for sales and a stunning 14% for EBITDA.

While Carbon Fiber remains a drag on the company’s overall performance, SGL Carbon has been transparent about exploring strategic options, including a potential divestiture. By shedding this underperforming segment, they could unlock even greater potential for their semiconductor business.

Here's the potential kicker: the transcript indicates that SGL Carbon's 2028 guidance *includes* Carbon Fiber. Let’s hypothesize for a moment that they divest this segment successfully and achieve the high end of their guidance. A rough calculation suggests their EBITDA could be closer to €355 million, with a potential margin exceeding 22%.

This raises a provocative question: are we underestimating the true potential of SGL Carbon? Could a semiconductor powerhouse be about to emerge from beneath the surface of this seemingly unassuming chemical company?

It's certainly food for thought. While the company has been cautious about disclosing specific figures, the available evidence points to a compelling narrative. SGL Carbon is strategically positioned within a high-growth, high-margin market and is actively using smart financing strategies to fuel its expansion. This, coupled with their ongoing efforts to divest their Carbon Fiber business, could create a perfect storm for explosive growth in the coming years.

"Fun Fact: Did you know SGL Carbon's high-performance graphite is used in the production of carbon-ceramic brake discs for luxury cars like Lamborghini and Ferrari? This niche segment has been surprisingly resilient, with demand actually accelerating during the COVID-19 pandemic. Talk about catering to a recession-proof clientele!"