Grifols SA (GRFS, Financial) (XMCE:GRF.P, Financial) is one of the largest operators of plasma centers in the world. Plasma demand has been high due, in part, to the 100 million Chinese who have various blood diseases. The Spanish company gets most of its revenues in the U.S., yet hardly gets a nod in the press.
The stock trades for 23.22 euros ($27.91), there are 687.55 million shares and the market cap is 15.965 billion euros ($19.16 billion). The earnings per share are 0.8228 euros and the price-earnings (P/E) ratio is 28.22. The dividend is 0.3156 euros and the dividend yield is 1.36%. It takes $1.20 to buy one euro.
According to the Financial Times, gross profit margins are 48.33%, net margins are 13% and operating margins are 23.75%. That is outstanding. Return on equity is 16% and return on investment is 5.94%. Earnings per share have grown 57.33% over the last five years. All good metrics.
Sales grew from 3.355 billion euros in 2014 to 4.050 billion euros in 2016. Free cash flow for the last three years was 260 million euros in 2016, 176 million euros in 2015 and 692 million euros in 2014. So the current free cash flow yield is about 1.6%. That’s nothing to brag about.
The balance sheet shows 763 million euros in cash and 467 million euros in receivables. The liability side shows 395 million euros in payables and 6.042 billion euros in debt. That’s a little bit debt heavy in my opinion, but Grifols is a growth company. Management does have a plan to pay down debt.
Plasma accounts for 79.7% of sales, diagnostics 16.4%, hospital sales 2.4% and raw materials 1.5%. U.S. and Canada account for 65.8% of revenues, Europe 15.8% and the rest of the world 16.9%. Grifols holds 18% of the plasma business.
I found out about Grifols by reading a newsletter from John Mauldin, which pointed me to an article in the Financial Times. According to the article, the Chinese use about 300 tons of serum albumin, the main protein component in human plasma. Sixty percent of the demand was imported and the demand is growing at 15% a year. About 100 million people in China have some type of liver disease. The Chinese are leery about donating blood due to a cover-up in the 1990s involving unsanitary needles.
I wrote on the largest company in the business the other day—Australia-based CSL Ltd. (ASX:CSL, Financial)Â (CSLLY, Financial) (CMXHF, Financial). As noted, both companies have large market caps, do the majority of their business in the U.S., have high sales and high profit margins, yet barely get a nod in the U.S. media. The Financial Times article was the first I had ever heard of either.
In the latest quarter, revenues grew 12.3% and EBITDA margins are 19.9%. Grifols also purchased a 49% stake in Access Biologicals for $51 million and acquired six plasma centers from Kedplasma for $47 million.
The share count is broken into A and B shares. There are 426.1 million A shares and 261.4 million B shares. The B shares have no vote. It is annoying to own a share and receive no vote at the annual meeting. This is a strike against Grifols.
Morningstar analyst Karen Andersen likes the stock. At the end of July, Andersen had a target of $22.50 for the American depositary receipt. The stock now trades at $20.35. Andersen noted Grifols has a moat because of the few participants in plasma and the high demand of immunoglobulin. She did note there could be some currency issues with the euro pulling back from the dollar. Morgan Stanley has a price target of $20 on the stock but had some good things to say. It noted Grifols has a Zika virus test that has been approved by the Food and Drug Administration. Morgan Stanley also noted the ADR trades at about a 20% discount to the A shares traded in Spain. Both reports are very good if you can get your hands on them.
Here’s my take on Grifols—I like it. My opinion on the free cash flow being so low is management is dumping lots of money into growth. Also, let’s hope they take some of that flow and continue to pay down debt. I am going to watch it for a while.
Disclosure: We do not own shares.
