Graanul - comment

There will be no impact on trading levels from Graanul's conference call yesterday. There was plenty of discussion around contracted volumes, new markets, and customer diversification, but frustratingly, little detail on the key issue for us – pricing. Without any details on pricing, bondholders would be advised to retain their current terms and resist any maturity extension deal. 

Contractedness has moved from 53% earlier in the summer to 62% currently, with management targeting 75–80% firm contracted by year-end. Management is not seeking to contract 100% of FY27; it prefers to retain flexibility to access the spot market and optimise returns.

However, the uncertainty remains around the economics of these contracts. Management did not indicate pricing, and we remain concerned that new contracts are being signed at lower prices than those secured in prior years. Graanul is clearly opening up new markets and customers, but the disclosed volumes on the new contracts remain relatively small. The company is making progress in reducing its dependence on its largest customers by diversifying across geographies and segments, but this does not address the underlying risk of lower pricing as existing contracts roll off.

Graanul also continues to downplay the impact of Drax reducing consumption, arguing that the impact will be less severe than feared. Management pointed to high-efficiency pellet plants in the UK and Netherlands that can now outperform gas even without subsidies. This may provide support for FY27 volumes, but does not remove the risk of pricing pressure if supply increases faster than demand.