Ex-Elliott activist Franck Tuil favors pharma stock Grifols’ rebound

^{By Hugh Leask}

Sparta Capital Management founder Franck Tuil, who spent two decades at Paul Singer’s activist hedge fund Elliott Management, has built a long position in Spanish pharmaceutical Grifols, which he believes can triple its share price in the next few years.

Grifols, which specializes in blood plasma-based medicine, was hit hard by the COVID-19 pandemic, when it became difficult to collect blood from donors during lockdown and social distancing. Its EBITDA consequently dropped from €1.4 billion ($1.5 billion) to €1 billion ($1.1 billion) in 2021, while its leverage ballooned from 4x pre-COVID to 9x in 2022.

However, the Barcelona-headquartered company is now primed for a strong rebound, according to Tuil, with its path to recovery built around a five-step plan engineered by Sparta together with Grifols management.

Speaking at the recent Sohn London investment conference earlier this month, Tuil – who led some of Elliott’s highest-profile deals across European public and private equity and credit – said the €8 billion company has been one of the most constructive engagements he had ever been involved in. While the company traded around 15 pre-COVID, Tuil believes the stock can eventually reach the mid-40s by 2026.

A course of action

The five-step plan involves boosting the recovery of plasma collection; cost savings; deleveraging; the acquisition of German pharmaceutical Biotest AG, which Tuil sees as an additional source of upside; and strengthening corporate governance.

On cost savings, Tuil pointed to Grifols’ “very ambitious” €400 million cost-cutting program last year, which was “implemented very quickly, very efficiently,” the results of which will emerge in 2024.

Meanwhile, against the backdrop of rising interest rates over the past 18 months, Tuil said the process of deleveraging has started, partly organically due to its EBITDA going up, and also as a result of plans to offload its 26.2% stake in Shanghai RAAS, a listed company in China operating in the plasma sector, which could net Grifols some $1.5 billion.

Tuil – who founded Sparta in 2021 having been at Elliott since 2001, latterly leading its London office - indicated the Biotest AG acquisition, announced in 2022, is a “game changer” for Grifols, and is expected to deliver €600 million of additional revenues by 2026.

Concluding his investment idea, Tuil said: “This is a situation we like a lot because the company is 100% focused, and has been for 12-18 months now, on bettering themselves and fixing issues. They were hit by one-offs, and those one-offs have gone away, so Grifols has taken this as an opportunity to make their overall operation better.”

“Looking at the stock today you’re still buying it at lows, even though frankly most of the hard work has been done,” he added.

_{This article, “Ex-Elliott activist Franck Tuil favors pharma stock Grifols’ rebound” was originally published on December 19th, 2023 on Alternatives Watch and is republished here with permission from BMV Digital, Inc.}

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