Grifols Reports In-Line 2022 Results

We’re lowering our fair value estimate for Grifols B shares GRF.P slightly to EUR 11.40 and maintaining our $12.20 ADR fair value estimate as we’ve adjusted for foreign exchange fluctuations as well as management’s forecast for 2023.

Grifols reported 2022 results in line with our expectations, with top-line growth of 12.4% at constant currencies (5.1% excluding the April 2022 Biotest acquisition). However, the firm’s 2023 forecast for 8%-10% constant currency revenue growth was slightly below our expectations, as Grifols is reserving more of its improving plasma collections to rebuild inventory than we had assumed. While we appreciate the cost savings and restructuring programs recently announced that are expected to bring EUR 400 million in annual savings (with the full benefit flowing through the income statement in 2024), we had already built in significant gross margin improvement over the next couple of years, as we had expected the firm to see greater efficiencies in plasma collection after recovering from pandemic headwinds.

We think the earnings announcement today clarified that Grifols is not simply rebounding to more normalized margins, but making a significant effort to control plasma operations costs by closing some collection centers, optimizing hours of remaining centers, and making other improvements like shortening donation times. Despite Grifols’ challenges as it attempts to create a more efficient business coming out of the pandemic, we still think the firm’s plasma business supports a narrow moat, and that financial health is on track to improve significantly over the next couple of years, prior to the start of more significant debt maturities beginning in 2025. We think the market underappreciates the stability of Grifols’ position in the plasma market and its ability to claw back to more maintainable debt levels, now that a string of acquisitions are complete and margins are poised to improve following the pandemic.