Grifols Earnings: Shares Remain Undervalued as New Leadership Poised To Oversee Margin Improvement

We’re slightly lowering our Grifols GRF.P fair value estimates of EUR 11.40/$12.20 for class B (nonvoting) shares to EUR 11.10/$12.20 following first-quarter results that were roughly in line with our estimates, factoring in slightly higher operating expenses as well as exchange rate fluctuations. Grifols reported solid top-line growth in the first quarter, with 18.4% constant currency growth including the Biotest acquisition (completed in the second quarter of 2022) and 9.1% growth excluding Biotest. Focusing on the biopharma division, Grifols saw 21.1% growth (9.6% excluding Biotest), as the firm continues to see strong demand and mid-single-digit price increases for its most profitable plasma-derived products like immunoglobulins and alpha-1. Grifols appears to be strategically focusing on maximizing growth with subcu product Xembify and in immunodeficiency, an area of the immunoglobulin market that look less vulnerable to novel competitors and is poised to see high-single-digit market growth. We model mid-single-digit revenue growth for Grifols in the coming years, as stronger growth for new specialty drugs and immunoglobulin in immunodeficiency is likely to be countered by slower growth in the albumin market and non-plasma competition in the autoimmune market for immunoglobulins as well as the alpha-1 market. Grifols also announced this week that board chairman Thomas Glanzmann has been placed in the role of CEO. While Glanzmann just entered the board chairman role in February, he had been vice chairman since 2017 and on the board for 17 years, with a long history in the plasma industry. We think this management realignment will help keep the firm on a stable path toward reducing leverage and maximizing the opportunity for plasma sales over the long term, and we continue to see Grifols as holding a narrow moat. Also, we’re raising our Uncertainty Rating for Grifols to High from Medium, due to variable cost concerns and new potential competition over the midterm.