Shares of Grifols rallied 8% on Wednesday, after the short-seller who criticized the Spanish drug company’s accounting practices sharply reduced its negative bet on the stock.
In a regulatory filing Wednesday, General Industrial Partners, the owner of hedge-fund Gotham City Research, said it had reduced its short position in the Barcelona-based company to 0.06% from 0.6%, Bloomberg reported.
The blood-plasma group’s Madrid-listed shares at one point on Tuesday plunged more than 40% after GCR released a report that said Grifols “manipulates” its debt-to-earnings figures by consolidating earnings of units it doesn’t control, meaning leverage was likely double reported levels.
“Should our estimate of the Grifols’ true leverage be correct, [Grifols] will face notably higher financing costs. Consequently, we believe shares are uninvestable, likely zero,” said Gotham City.
However, Grifols management in a filing to the stock market regulator on Tuesday called the GCR report “false information and speculations” and said “we categorically deny and reject any allegations of wrongful accounting or reporting practices of our consolidated financial statements.”
Grifols will hold a management call with investors on Thursday to address the GCR allegations.
Patricia Cifuentes, senior analyst at Madrid-based fund manager Bestinver, said the GCR report contained nothing that the market had not already addressed, and rated the shares a buy
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“We have flagged Grifols’ weaknesses (the debt and the governance) on many occasions, but the issues are already reflected in our valuation of €15-€16 for the A-shares,” Cifuentes said in a new research note sent to MarketWatch on Wednesday.
“In our view, the issues flagged by Gotham are either well-known or unimportant from a fundamental standpoint. Moreover, we trust the company’s ability to deliver on the deleverage path announced. Thus, we see the current share price weakness as an opportunity ahead of the results due on February 29th,” Cifuentes added.
