Grifols Reports Solid 2014; No Fair Value Estimate Change as Fundamentals Remain StrongFont size: A | A | A
9:34 AM ET 2/26/15 | Morningstar
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10:53 AM ET 2/26/15
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34.12 0.71%
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Grifols reported strong results for 2014, with 22% top-line growth (24% at constant currencies) and a 32% adjusted EBITDA margin. This was slightly below our forecast on the top line, but profitability was stronger than we expected, putting bottom-line performance closer to our forecast. We're maintaining our EUR 34 per share ($39 per ADR) fair value estimate, and we remain confident in Grifols' narrow moat, which rests in its significant cost advantages in the global plasma market. While performance was boosted by the Novartis diagnostics acquisition in January, about 60% of Grifols' revenue is derived from North America, likely giving the firm a strong currency tailwind in 2015 and driving continued double-digit growth this year.
Grifols' plasma sales were weaker in 2014, which we believe is due to ex U.S. Factor VIII pressure and a more competitive U.S. hospital sales environment. The Bioscience division (now 75% of revenue) grew 2.6% in 2014 (4% at constant currencies). Performance has improved each quarter this year, but the 4.8% constant currency growth in the fourth quarter was well below the 8% growth in 2013. We think this is largely due to double-digit declines in sales of the firm's Factor VIII products in a very competitive environment, as recombinant products are increasingly used in emerging markets. However, Grifols noted that the U.S. plasma market was quite competitive in 2014 and that it did increase marketing and negotiate contracts (probably implying some pricing pressure, even in this higher-priced market). We think these comments apply to the immunoglobulin market, confirming recent comments from CSL, which pointed to pricing pressure for its fighting brand Carimune in price-sensitive hospital channels. However, we continue to view the top three global plasma firms as holding significant cost advantages over smaller players, and we think pricing power remains strong for premium brands, which are increasingly used chronically and at home.
