Graanul - comment

Graanul’s bonds rose by around five points following the Q1 call last night, as investors took comfort from announcements of new contracts extending beyond 2027. However, the company did not disclose any pricing, volume, or contractual details related to this existing client. Despite this lack of transparency, the bonds have rallied into the mid-90s and now trade at a yield to maturity below 10%.

We have never questioned Graanul’s ability to secure volumes beyond 2027, but we have questioned the impact that the loss of a large client could have on industry-wide profitability. That view has not changed. In the absence of any pricing disclosure, we see no fundamental justification for the recent price appreciation. While Graanul referenced ongoing contract negotiations that could further extend volumes beyond 2027, the lack of pricing information leaves us sceptical about the sustainability of the bond rally. We will review the numbers in detail with a view to potentially taking a short position, while remaining mindful of the limited near-term catalysts.

Separately, Graanul’s CEO has retired from his role. He will remain involved as an adviser to Apollo, Graanul’s equity sponsor.