between stupor analysts In response to the report accusing the Catalan company Grifols of manipulating its accounts. Astonishment, astonishment, astonishment, astonishment. This Wednesday, the dictionary ran out of terms to describe the bombshell report of the American financial firm Gotham City Investigation It accuses blood products company Grifols of falsifying its accounts to the extent that stock market prices did not fully reflect book value. Grifols shares are up 48% in 2023 and the rise is expected to continue. Until today. actions griffles After some recovery, they fell 42% this Tuesday. While an explanation of what is true and false about the accusations is awaited, the situation is causing a major crisis of confidence among investors, and the biggest beneficiaries of this crisis will be the bearish positions. Trades in derivative markets that bet on a sudden drop in stock prices are winning. And a lot.
Analysts from brokers and investment banks remained cautious on Wednesday amid this confusion. For XTB analyst Javier Cabrera said: “We still have to wait for future events and the pharmaceutical company’s reaction. But the alleged irregularities in its results are quite significant and, if confirmed, could push its price to historically low levels.” According to him, the Gotham report raises doubts: “In recent years there have been some cases of instability regarding Grifols’ management and management changes, which fuels the accusations.” Analysts also point out that debt reduction has always been a priority, such as staff cuts implemented in recent months and the sale of part of its Chinese subsidiary. The point is that if the situation described in the Gotham report is confirmed (basically, the company’s actual debt could be up to 10 times higher), Grifols “could face major difficulties in the medium term.” “We are now entering an area of legal dispute where we would not be surprised if we see new reports that further clarify this situation,” Cabrera concludes.
According to XTB experts, Grifols’ continued acquisition of companies despite the increase in debt and the subsequent wave of sales are “a typical sign that the company is trying to hide something.” One notable point is that despite the purchases made through debt, the ebitda margin (pre-tax profit) has been decreasing over the years and “that doesn’t make much sense,” according to XTB.
For broker Alantra StockThe current situation “does not put the company in a liquidity/solvency problem”, thanks largely to the sale of shares in the subsidiary that Shanghai RAAS announced two weeks ago. In any case, external auditing will be necessary to reassure the market.
Short positions, Gotham advantages
Given the collapse of the Grifols, Gotham itself is one of the biggest beneficiaries. Investment funds Gotham City, Portsea Asset Mangament and Ako Capital are accumulating a 0.98% short position in Grifols’ capital, according to CNMV data reported by Europa Press. Specifically, General Industrial Partners, a fund jointly launched by Gotham City Research and Portsea, notified the regulator on Tuesday that it had a short position of 0.57% of Grifols’ capital. Ako Capital reported that it reduced its position from 0.55% to 0.41%. At Monday’s closing market prices, General Industrial Partners’ position would be worth €34.6 million, while Ako’s position would be worth €24.88 million.
If there is an expectation that the price of a stock or asset (currency, precious metals, stocks…) will decrease, a market participant may engage in what is known as short selling. Thus, the short seller first borrows money from other market participants and sells it. You will then need to buy back the same number of shares to deliver them to the original owners, earning that margin if the trend is correct. The benefit can be even greater if this transaction is carried out within the framework of a financial options or derivatives market without the actual purchase of assets. This total open fund position in the blood products company represented an expense of €59.48 million. Considering that Grifols’ price fell by 42% in Tuesday’s session when it finally started trading, then the theoretical gain for both funds should have been around €25 million.
If all or part of the Gotham report is confirmed, the institution most affected by the scandal will be the National Securities Market Commission (CNMV). CNMV president Rodrigo Buenaventura stated this Wednesday that “CNMV will use its powers to clarify the situation” and that it is no longer appropriate to suspend the company’s listing because investors have the information to make their own decisions. According to EFE’s report, Buenaventura emphasized, “When information is incomplete or asymmetrical, when the investor does not know about it, trading suspension is applied. This is not the current situation.”