By Shares of Spanish blood plasma company Grifols experienced a significant decline of over 40% on Tuesday following skepticism surrounding the accuracy of the group’s financial reporting by hedge fund Gotham City Research.
In a published research note, Gotham City, a short seller, claimed that Grifols “manipulates” its reported debt and earnings figures to artificially reduce reported leverage. The hedge fund believes that Grifols’ actual leverage is closer to 10x-13x, which is significantly higher than the reported 6x. Due to this potential discrepancy, Gotham City declared that Grifols’ shares are not a viable investment and may eventually become worthless.
In response to the allegations made by Gotham City, Grifols, headquartered in Barcelona, filed a statement with the stock market regulator denouncing the research as “false information and speculations.” The company firmly denied any wrongdoing in its accounting or reporting practices, emphasizing that its consolidated financial statements have been fully disclosed, audited since 2018, and reported to the Spanish regulator.
It remains to be seen how these allegations will impact Grifols’ future financing costs and overall market perception.
Grifols Shares Experience Significant Drop After Controversial Report
The shares of Grifols, a drugmaker company, initially plunged by 43%. However, they later stabilized at a 27% decline, resulting in a market capitalization of €6.27 billion ($6.9 billion). The drastic drop was triggered by a report from The Gotham City which was challenged by analysts covering the company. These analysts argued that the off-balance sheet debt mentioned in the report was already widely known.
One notable analyst, Patricia Cifuentes from Madrid-based asset manager Bestinver, highlighted the issue of high leverage and off-balance sheet debt when she downgraded Grifols’ stock to sell in February 2022. Despite this, Cifuentes currently rates Grifols as a buy with a price target of €15-€16.
In response to The Gotham City report, Grifols has scheduled a board meeting for Tuesday afternoon. Tomas Daga, a board member, expressed confidence in the company’s clean financial position, stating, “Our house is clean, we are very sure about that.” It is worth noting that Grifols has not yet commented publicly on the matter.
The decline in Grifols shares had a negative impact on Madrid’s Ibex 35 index XX:IBEX, resulting in a 1.9% decrease. The overall performance of European markets was also weak, with Germany’s DAX DX:DAX and France’s CAC 40 FR:PX1 both experiencing a 0.3% decline. On the other hand, the UK’s FTSE 100 UK:UKX remained relatively stable, supported by a rebound in energy stocks following the recovery of crude oil prices BRN00, +2.52% after a sharp fall on Monday.
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