Wednesday, March 22

The shadow of a capital increase places Grifols on the precipice

Grifols shares traded with sharp falls due to the possibility that the company will have to undertake a capital increase due to its high indebtedness.

The shares are close to their relevant support of 14 euros and are trading at levels of eight years ago.

The possible capital increase has been sounding in the market for some time, but the alarms went off on Monday due to the evidence that Grifols will present poor results, which coincided with a bearish technical movement that ended up accelerating losses.

With these falls, the plasma derivatives manufacturer has already lost almost 13 percent in the year and is one of the worst values ​​on the IBEX 35.

The point is that the company could remove the fear of expansion if it presented good results, but it is not what is expected, according to the sources consulted by The group will reveal its figures on February 28.

Grifols’ results will be disappointing

For Grifols’ business, plasma collection is key and the restrictions derived from the coronavirus are not helping. In China and the United States you can mitigate this impact by paying donors, but this is not the case in Europe.

“Plasma collection is becoming very expensive, which means that margins are being squeezed,” he told José Lizán, manager of the Rreto Magnum Sivcav fund. Precisely for this reason, analysts are getting the worst.

In a recent report, economists at Alantra “drastically” cut their estimates for Grifols. “Plasma collection is much slower than expected, leading us to cut estimates,” they argued.

As a result, these experts lowered their EBITDA projection for 2021 by 18 percent and earnings per share by 39 percent.

“Very bad results are expected, they have been saying all year that donations are recovering, but it seems that the figures are bad,” he told Alvaro Aristogui, Analyst of Income 4 Bank.

In addition, the group has “a lot of extraordinary negatives due to the operation they did in Singapore, the biotest takeover bid and the restructuring of the workforce”, while “the recurring business has not just recovered and they are going to have disastrous margins”, stressed the expert.

Fear of capital increase

The low cash generation and the depression of profits will cause the net debt/ebitda ratio to reach 5.4 times in 2021. And up to 5.8 times after the purchase of Biotest, according to Alantra estimates. And here begin the fears of a possible capital increase.

As calculated by this broker, the leverage ratio will climb to 7.2 times in 2022 (counting all items), which leaves the group “vulnerable to any unexpected event or deterioration in operating prospects.”

That’s the way it is, Grifols would need an increase of 2,000 million euros “to bring the debt to reasonable levels”, it is something that “makes sense”, he said Alantra. The problem is the dilution that this operation would provoke in the control of the family, which could generate internal opposition to the operation, according to the same source.

The sources consulted by they assure that the risk of the enlargement has been sounding in the market for some time.

The point is that it has accelerated as Grifols lost sensitive technical levels and discounted bad results with the estimates that the valuation firms have been releasing.

In addition, the same sources point out that Grifols had to cancel some meetings with market experts, which suggests that “they must not be comfortable with the message they are giving and that is not usually liked by the market.”

If there was finally no capital increase, Alantra believes that Grifols could kick forward due to the fact that it does not have relevant maturities until 2025. However, “the risk of financial stress will continue to haunt the company in the future”.

Grifols, on the edge of the precipice

After the falls on Monday, the Grifols share lost the psychological level of 15 euros and is now trading with its sights set on 14 euros, levels not seen in the market since 2014.

“It really is a bad sign, because the loss of 16 euros was already complicated,” said the magazine’s director of analysis INVESTMENT, Josep Codina.

The minimums that it marked in 2014 are lower, at 12.5 euros, but Codina points out that it could test them if it finally loses 14 euros. And so far there is barely a margin of decline of 4 percent. “The downward trend is very clear and there are no signs of recovery,” argued Codina.

We have seen an attempt to break the support of 14.5 euros, but more important is that it does not break 14 euros per share, since it is a minimum of October 2014 and “if it loses it it would go to 12.7 euros” he added Dario Garcia, XTB analyst.

The key to any rebound is to recover the 15 euros on a psychological level, and then the 16 euros, which “would give the option to validate the rebound,” said Codina. But higher up, the most important thing is the 17 euros, which would make it possible to form a ground pattern.

It would not recover the important relative minimums up to 19 euros, which would return the value to a lateral scenario. But to think about advances it would have to exceed 22.5 euros or 23 euros. Until here, Grifols would have to recover 56 percent.