Why Sam’s Backing This Under-The-Radar Healthcare Firm

Why Sam’s Backing This Under-The-Radar Healthcare Firm

over 2 years ago3 mins

Stock summary:

  • Grifols is a reliable, under-the-radar healthcare company
  • It’s a steady dividend-payer in a growing market, with very few competitors
  • Its stock has been hit hard by the pandemic and currently looks undervalued

🤝 Introduce yourself, Sam

I’m a 40-something investor from the Netherlands focusing on value and dividend stocks. I like to think independently and look for investment opportunities that are not yet popular.

⚾️ So what’s the pitch?

Grifols, a Spanish healthcare firm (ticker: GRF). The company should profit from the world’s aging population and the increasing use of immunotherapies and blood-derived products and medicines. I believe the stock has fallen too much since the coronavirus pandemic began, as investors are overly pessimistic about its impact on plasma collections. After all, worldwide demand for plasma is on the increase. For me, Grifols is a reliable investment with excellent long-term prospects. It operates in an underfollowed industry and in a market with high barriers to entry for new competitors. 

🔧 What does Grifols do?

Grifols is the world’s largest producer of blood plasma and immunoglobulin, with very few competitors. It operates in four business segments: Bioscience (plasma and plasma-derived medicine), Diagnostics, Hospital, Bio Supplies, and Others. The Bioscience segment includes all activities related with products deriving from human plasma for therapeutic use. The Hospital segment comprises all non-biological pharmaceutical products and medical supplies manufactured by group companies earmarked for hospital pharmacy. The Diagnostic segment deals with the marketing of diagnostic testing equipment, reagents, and other equipment. The Bio Supplies segment consists of all transactions related to biological products for non-therapeutic use. The Others segment focuses on the rendering of manufacturing services to third- party companies. 

💡 Tell us your investment thesis

  • The blood plasma fractionation market is expected to grow 7.6% a year until 2027, reaching $48.5 billion in value. Supplier pricing power is high due to limited supply and tightly controlled market with extremely high entry costs.
  • Profit from possible proprietary medicines in the fields of Alzheimer’s, Parkinson's and anti-aging, immunotherapy, hepatology, ophthalmology, and infectious diseases.
  • Underfollowed by analysts and investors, unknown and hence unloved, provides an excellent opportunity to purchase a long-term compounder at a good price.
  • Founding family has board representation and owns around 35% of voting rights, providing stability as well as alignment with other shareholders.

🎉 What are the key events you’re watching?

  • Industry consolidation as well as any changes in legal frameworks affecting blood and plasma donations.
  • Further shift from traditional blood-plasma business to biosciences and biopharmaceuticals.
  • Results of clinical trials and development of new technologies.

📈  What’s the upside potential if you’re right?

Grifols is a dominant market player in an industry set to be a steady grower for many years. This is a classical compounder, with a current dividend yield of around 2.6% (payout ratio around 35%), operating in an industry with high barriers to entry. The stock has been hit during the COVID pandemic due to fears of plasma collection shortfalls. I believe these fears will prove overblown. Being under the radar, the stock still trades around 50% lower than its pre-COVID price, while the market and industry dynamics have not changed. 

What are the big risks you’ve spotted, and how do you plan to mitigate them?

There are some inherent risks in blood products such as the risk of new and unknown virus infection. Also potential recombinant substitute products are a risk, but so far blood plasma-based products have proven to be superior and more effective.  

Have your say

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