Spanish multinational pharmaceutical company Grifols SA (ES:GRF) and its major shareholder and related party, Scranton, have come under the European Union’s (EU) radar following short seller Gotham City Research’s accusations last week. A Reuters report suggests that the European Central Bank (ECB) has asked some lenders to give information on their exposure to Grifols. Further, Scranton Enterprises BV is being probed by Spanish regulators to detail their shareholding, accounts, and businesses.
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Grifols SA collects plasma and then manufactures and sells plasma-derived products globally. Grifols also has smaller segments, including diagnostics, hospital supplies, and bio-supplies. GRF shares have lost over 30% in the past year, primarily following the Gotham City Research report that led to a 40% plunge in shares.
Details About EU’s Probe
The ECB has asked some of Spain’s and Eurozone’s banks that work with Grifols to give details about their risk metrics. The short seller report has alleged that Grifols manipulates its accounts and that its leverage ratio should be far higher than it has reported. Grifols has €9.5 billion of debt on its balance sheet, €1.8 billion of which is due to be paid next year.
Notably, Scranton is Grifols’ second-largest shareholder, while Grifols’ family members own roughly 20% of Scranton. The ECB is worried that Grifols’ share price plunge could require the related parties, including Scranton, to deposit more margin for loans that have been collateralised with GRF shares. Hence, it is probing Scranton’s accounts and has asked the company to submit the required information by January 19.
Grifols has denied any manipulation of its financials and informed Spain’s market regulator that the short seller report holds “false information and speculation.” Further, Grifols said that its accounts are audited and signed by regulators. Meanwhile, the company is trying to simplify its business structure.
Is Grifols a Buy, Sell, or Hold?
On January 17, research firm Oddo BHF’s analyst Juan Ros-Padilla resumed coverage of GRF shares with a Sell rating after suspending his Buy recommendation last week following the short seller’s report. Further, he slashed his price target by half to €9 (7% upside potential).
Ros-Padilla believes that although the accusations lacked proper information, they have put Grifols in the spotlight and its shares will take a long time to recover. The analyst also sees further damage ahead for Grifols despite management’s assurances.
On TipRanks, GRF stock has a Moderate Buy consensus rating based on three Buys and two Hold ratings. The Grifols SA share price target of €18.76 implies a whopping 124.5% upside potential from current levels.
