Rodrigo Lopez Buenrostro of KUE Capital presented his investment thesis on Grifols S.A. (Spain: GRF, US: GRFS) at Wide-Moat Investing Summit 2021.

Thesis summary:

Grifols is a Spanish multinational pharmaceutical and chemical manufacturer. Principally a producer of blood plasma-based products, a field in which it is the European leader and largest worldwide, the company also supplies devices, instruments, and reagents for clinical testing laboratories.

Plasma fractionalization is a simple yet specialized and capital-intensive process that only a few companies can execute. The business model is vertically integrated and capital intensive, with high barriers to entry in a highly regulated, oligopolistic industry. Grifols is a top-three player with 25% market share, ranking behind CSL Limited (Australia: CSL) and Baxalta, a subsidiary of Takeda Pharmaceutical Company (Japan: 4502).

The Grifols business has delivered 8% historical top-line growth, 17% ROEs, and 28% EBITDA margins. Shareholder value is anchored by great stewards of capital at the helm of Grifols. The company was founded in 1940 in Spain by Jose Antoñio. The founder’s great-grandsons lead the business today, with family ownership of ~30% of Class A shares. They have been smart allocators of capital, reinvesting ~90% of EBITDA and levering up at attractive rates to expand U.S. presence and capacity in 2010 and 2017.

Rodrigo favors the Class B shares, which recently traded at a near-record ~40% discount to the Class A shares, despite the Class B shares’ non-voting feature being the only difference between the two share classes. The Class B shares trade at a normalized FCF yield of 11% and an estimated 2022E P/E of 12x.

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About the instructor:

Rodrigo Lopez Buenrostro works at Kue Capital where he invests to preserve capital over time. He pioneered the asset management division within the firm and divides his time between equity research and manager selection with a global mandate. Previously, Rodrigo worked as a summer equity analyst at SW Investments, a value-focused hedge fund in Chicago. He began his professional career as an Investment Banker at BBVA. Rodrigo is also an MBA graduate from Chicago Booth ’15 where he earned a concentration in Analytic Finance and was actively involved in the Investment Management community. He studied Business and Accounting at ITAM (Mexico Institute of Technology) for undergrad where he wrote his thesis on hedge funds and started to invest personally. Rodrigo has always had an interest in finding the real value of assets while negotiating with Mr. Market, reading, and volunteering at NGOs to teach basic concepts related to investing.

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