Shares of Grifols experienced a significant 8% rally on Wednesday, following the announcement that the short-seller who criticized the Spanish drug company’s accounting practices has reduced its negative bet on the stock.
According to a regulatory filing released on Wednesday, General Industrial Partners, the owner of hedge fund Gotham City Research, disclosed that it had decreased its short position in the Barcelona-based company from 0.6% to just 0.06%. This news has provided a boost to investor confidence, resulting in the positive market reaction.
Earlier this week, Grifols’ Madrid-listed shares had taken a substantial hit, plunging over 40% in response to a report from GCR. The report accused Grifols of manipulating its debt-to-earnings figures by consolidating the earnings of units it does not control, suggesting that the reported leverage was likely double the actual levels.
In response to these allegations, Grifols management issued a filing to the stock market regulator on Tuesday, vehemently denying the accusations. The company described the GCR report as containing false information and speculations about their accounting and reporting practices.
To further address these concerns, Grifols will be conducting a management call with investors on Thursday. This call aims to provide clarification and address any lingering questions or doubts regarding the GCR allegations.
Patricia Cifuentes, a senior analyst at Madrid-based fund manager Bestinver, expressed her opinion that the GCR report did not contain any new information that had not already been addressed by the market. Cifuentes rated the Grifols shares as a buy and affirmed her confidence in the company’s ability to overcome its current challenges.
Cifuentes further stated, “We have previously noted Grifols’ weaknesses, such as its debt and governance issues. However, these concerns are already factored into our valuation of €15-€16 for the A-shares. From a fundamental standpoint, we believe the issues highlighted by Gotham are either widely known or insignificant. Additionally, we have faith in the company’s ability to follow through with its announced deleverage plans. Thus, we view the current weakness in share price as an opportunity ahead of the results scheduled for February 29th.”
