Grifols SA ADR (GRFS)

Grifols SA ADR (GRFS) stock plummeted by 8.26% due to a regulatory review of the Spanish bio-science company's financial reports, which found "relevant deficiencies" but no major accounting mistakes.

• Regulatory Review Findings: The Spanish regulator identified deficiencies in Grifols' use of adjusted Ebitda related to non-controlling stakes in other companies. However, it stated that no significant errors were found in the financial reports and that the leverage ratio reported by Grifols aligns with reality.
• Investor Concerns and Company Actions: The regulatory review was initiated after Grifols was targeted by short-seller Gotham City Research, which accused the company of deceptive accounting and poor governance. Grifols denied the allegations but has taken steps to reassure investors, including appointing a new CEO and reducing the role of the founding Grifols family.
• Regulatory Requirements and Company Commitments: The regulator has given Grifols 15 days to publish commitments to improve its alternative performance metrics in future financial reports and provide additional data on Ebitda and net financial debt for relevant companies in which it has non-controlling stakes. The conclusions of the review could potentially lead to sanctions for Grifols, though a decision may take several months.

Grifols SA ADR (GRFS) stock declined by 9.15% following downgrades by credit rating agencies Fitch and S&P. The agencies cited lower-than-expected free cash flow generation and refinancing risks as reasons for the downgrades, causing Grifols' shares to fall more than 9%.

• Credit Rating Downgrades: Fitch downgraded Grifols' rating to B+ from BB-, noting slower-than-expected deleveraging due to significantly lower free cash flow generation in 2023 and 2024 than previously forecasted. However, Fitch mentioned that the pending sale of Grifols' 20% stake in Shanghai RAAS could help mitigate refinancing pressure. S&P also downgraded Grifols' rating to B from B+ due to weaker cash flow generation and higher refinancing risks.
• Grifols' Response and Financial Targets: Grifols responded to the downgrades, stating that they came in light of 2025 maturities that the company expected to address in the first half of the year to improve leverage levels. The company reaffirmed its commitment to conducting business as usual. On March 1, Grifols announced a new operating cash flow generation target for 2024, expecting it to more than double to 900 million euros ($984 million) before one-off items. The company also aims to generate between 2 billion and 2.5 billion euros in free cash flow before dividends from 2025 to 2027, following negative free cash flow in 2023 for the second straight year.

Grifols SA ADR (GRFS) stock dropped by 21.83% due to concerns related to the company's accounting practices raised by hedge fund Gotham City Research, who released a report titiled "Grifols SA: Scranton and the Undisclosed Debts". Here is a summary of the key events and factors contributing to this stock drop:

• Accounting Questions Raised by Gotham City Research: Gotham City Research, a hedge fund, questioned Grifols' reported financial metrics, including its debt levels and earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as its leverage ratio, which it claimed to be close to 10 to 13 times EBITDA. Gotham's report prompted concerns about the accuracy of Grifols' financial reporting. Following Gotham's allegations, Grifols' shares fell by as much as 30%, resulting in a significant reduction in the company's market value, amounting to nearly $3 billion.
• Grifols' Response and Denial: Grifols responded to Gotham's report by categorically denying any wrongdoing and describing the report as containing "false information" and "speculation." The company emphasized its commitment to transparency and integrity in its disclosures.
• Market Reaction: Grifols' shares initially dropped by 42% at the market open but later recovered slightly, down about 26% in late afternoon trading in Madrid and early trading on Nasdaq.
• Financial Impact and Debt Maturities: Grifols faces two significant debt maturities in the first half of 2025, totaling approximately 1.85 billion euros, as indicated by Moody's credit rating agency. However, Grifols' leadership maintains that Gotham's allegations should not impact the company's financing needs, with the 2025 maturities covered by the recent Chinese stake sale.
• Continued Uncertainty: The stock price decline reflects uncertainty in the market regarding the accuracy of Grifols' financial reporting and the potential impact on its financial health and future prospects. Further investigations and disclosures are expected to provide clarity on the situation.