Grifols Earnings: Double-Digit Immunoglobulin and Albumin Growth, Shares Look Undervalued

Grifols GRF.P saw slightly lower third-quarter sales growth than we had modeled, but cost savings measures are also working faster than we had anticipated, so we’re maintaining our $12.20/EUR 11.10 fair value estimates for class B non-voting shares. Grifols’ top line grew 9% at constant currencies in the quarter, driven by 14% growth in Biopharma. Management called out immunoglobulin (15% constant currency growth so far this year) and albumin (18% year-to-date growth) franchises as top performers in Biopharma, as its newer subcutaneous product Xembify continues to gain share in the immunoglobulin market and albumin benefits from higher demand and pricing in China. Management reaffirmed its guidance for 10%-12% constant currency growth for the full year, with adjusted EBITDA poised to hit the high end of prior guidance, at EUR 1.45 billion. Emerging competition in autoimmune diseases from firms like Argenx and UCB has kept our moat rating for Grifols at narrow, although we still think the immunodeficiency market (roughly half of Grifols’ total immunoglobulin market) and other plasma-derived proteins like albumin have better long-term prospects. That said, the alpha-1 market appears to have flattened, and new competition is approaching.

Grifols strategy to improve margins and reduce leverage appears to be on track. Grifols continues to increase supply and push costs of collecting and processing plasma down, and due to a lag between processing and sale of these products, the firm is just beginning to recognize margin improvements from lower costs beginning in late 2022. We expect Grifols’ 23.4% adjusted EBITDA margin in the quarter will grow to 25% by 2027. Net debt/EBITDA is now 6.7, and management still expects this to fall to 4 times in 2024. In addition to cost-saving measures, we think the anticipated reduced stake in China plasma firm Shanghai RAAS—generating a potential $1.5 billion if the deal closes in the first half of 2024—will allow Grifols to realize its goal.