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Grifols, the Spanish niche firm whose blood is worth bottling

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Grifoils' 12-month share price

Grifoils' 12-month share price

Grifoils' 12-month share price

A thing I love about business is the capacity of some dedicated people to take an idea that no one else has had, and turn it into gold.

The alchemists of old only dreamed of doing so but the company we are looking at today took an unworked medical concept and in less than 50 years turned it into a business that spans the globe and boasts sales of nearly €3bn. It is a Spanish company called Grifols and its business is blood. It develops, manufactures and markets plasma derivatives, diagnostic systems and medical materials in its industrial facilities in North America, Spain, Australia, Switzerland and in the future Grange Castle Business Park in Dublin.

Great medical and medicine-related companies usually have their origins in conflict and Grifols is no different. It was founded after the Spanish Civil War by Dr Jose Grifol who had patented the process of 'freeze drying' human blood plasma. At the start of the 1950s Grifol developed the process of extracting Plasma while re-injecting red blood cells back into the donor. This technique was embraced globally.

The Americans were quick to appreciate the technology and American Hospital Supply Corporation took a 50pc stake in the company, later selling it. It traded as Probitas Pharma SA until 2004 when it became Grifols. In 2006 it was listed on the Spanish stock exchange.

These days Grifols has expanded to become an influential medical process company with three divisions; bioscience, diagnostics and hospitals.

Bioscience is the main driver of growth. Its focus is the treatment of medical conditions, using blood for conditions like pulmonary disorders, immune deficiencies and infectious diseases such as rabies and hepatitis. The sales for this division last year were €2.4bn, up 5pc. The diagnostic division supplies clinical analysis and lab testing equipment for hospitals and blood banks worldwide. The hospital division, the minnow of the group, provides systems for running hospitals and intravenous fluid solutions and medical devices for surgical therapies.

The company's success is based not only by growing organically but by acquisition. In 2011 it purchased the US company Telecris for $4bn, so becoming the third largest producer of plasma-derived medicine. It enjoys 20pc of the world market, matching that of its US competitor Baxter International. The acquisition also gave the company a presence in most countries in Europe, South East Asia, Japan, China and Australia. Last January it was back was on the takeover trail when it purchased the blood diagnostics unit of Novartis, the Swiss pharma company, for $1.7bn. This acquisition boosted Grifols presence in the blood diagnostic sector.

Since its listing the company has enjoyed impressive growth. In seven years sales have exploded from €650m to €2.7bn, profits from €130m to €345m and employees from 4,000 to 12,000. Some 70pc of the workforce is in the USA and thanks to the recent acquisitions, three-quarters of group sales are there too. The debt level of €2bn is considerable, but down €300m in the past year and the company has pledged to reduce it further. Dividends suspended in recent years were resumed in 2013, with a pay-out target of 40pc of profits which, as regular readers will know, is music to my ears.

Grifols' shares trade at €32, just below its recent record of €34. A view is that the current valuation may not reflect the long-term potential, as it continues to offer value in light of its strong growth. Admittedly the company is a niche player but it has characteristics that European investors want; its shares in euros have no currency risk while its earnings are largely in dollars. As Brendan Behan might have said "it's blood is worth bottling".

NOTHING IN THIS SECTION SHOULD BE TAKEN AS A RECOMMENDATION, EITHER EXPLICIT OR IMPLICIT, TO BUY OR SELL ANY OF THE SHARES MENTIONED

Irish Independent