Lowering Our Grifols FVE; Strong Q3 and Shares Still Undervalued, but Margin Improvements Take Time

We've lowered our Grifols fair value estimate for the firm's non-voting shares to EUR 12.10/$12.20 from EUR 15.40/$16.20 following third-quarter results that were solid but led us to forecast a longer timeline to margin recovery than we had previously built into our model. Grifols reported third-quarter revenue growth of 37%, benefiting from both the incorporation of the recent Biotest acquisition as well as foreign exchange tailwinds. On a constant currency basis and excluding Biotest, revenue grew 13.7%, as 21% growth in the biopharma arm (80% of sales) was partly countered by loss of COVID-19 and Zika testing sales in the diagnostics arm. Plasma collections are recovering from lower levels during the pandemic—up 25% in the first 42 weeks of the year—and pricing power remains strong. In addition, the firm's 20.9% EBITDA margin (20.6% excluding Biotest) in the quarter puts Grifols on track to see similar margins for the full year, as guided by management. However, these margins are significantly below the 25% level seen in the first half of 2021, largely due to a lower gross margin.