Grifols Earnings: Leverage and Cash Flow Improve as Discussions Continue on Going Private

We’re maintaining our EUR 10.90/$11.80 for class B (nonvoting) Grifols shares following second-quarter results, which put it on track to meet our expectations for the year. The firm’s 9.3% reported revenue growth (8.5% growth in the key biopharma segment) and improved 24.2% adjusted EBITDA margin are encouraging, particularly as gross margin should improve in the second half of the year following inventory accruals in the second quarter. Grifols is also improving its leverage ratio, thanks to the EUR 1.6 billion in proceeds from selling a 20% equity stake in Shanghai RAAS, bringing net financial debt to 5.5 times adjusted EBITDA for the last 12 months. Free cash flow also turned positive in the second quarter as the firm improved working capital. While Grifols has also issued EUR 1.3 billion in new debt following this deal, we think EBITDA improvements put Grifols on track to improve its leverage ratio further. However, debt levels remain heavy and contribute to our Poor Capital Allocation Rating for the firm. That said, we see shares as undervalued, and Grifols is sharing information with private equity firm Brookfield Capital Partners as it evaluates a potential deal to take the firm private.