CSL Ltd: 1H mixed - positive momentum, broadening portfolio
About the author:
- Author name:
- By Dr Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 15 February 2023, 8:00 AM
- Sectors Covered:
- CSL Limited's (ASX:CSL) 1H results were mixed, with underlying constant currency (cc) profit a little light (+9%), but on strong, in-line revenue growth (+25%).
- Record plasma collections (+36%) propelled plasma products (Ig, +19%) and Behring sales (+11%), while Seqirus posted high-single digit growth despite reduced immunisation rates, and newly acquired Vifor was solid (+15%).
- Soft Behring GPM (-490bp; 49.1%) continues to reflect inflationary pressures, a long inventory cycle and higher plasma collection costs during COVID.
- FY23 guidance (NPATA +13-18%) was reaffirmed, implying a solid 2H (+20%+ at mid-point), despite Seqirus unfavourable seasonality, as plasma costs continue to improve, Vifor contributes fully and Hemgenix US launch is imminent.
- Modest FY23-25 adjustments and multiple roll forward sees PT at (login to view). Add.
1H results were mixed, with EBITDA US$2,516m (+2%; +9% in cc; Morgans US$2,657m) on revenue US$7,184m (+19%; +25% in cc; Morgans US$7,221m).
GM contracted (70bp; 56.4%) mainly on elevated plasma costs, while a 54% increase in SG&A (+5% ex-Vifor) saw group OPM decline 280bp to 47.1%.
While OCF was lower on strong plasma collections (-31%; US$981m), with interim dividend increased 3% to US$1.07 (A$1.55, +7%).
FY23 outlook was maintained cc NPATA (NPAT ex-amortisation/one-off costs) US$2.7-2.8bn (+13-18%) on revenue of 28-30%.
Underlying earnings were driven mainly by Behring (US$1,875m; 55% of op income) as plasma collections increased (+36%) and now stand >10% above pre-COVID levels, driving plasma-based product sales (Immunoglobin (Ig) +19%; Albumin +11%), but some non-plasma-based products managed to perform much better (Hemophilia recombinants +22%; Specialty peri-op bleeds +8%).
While Behring GPM were weak (-490bp; 49.1%) on multiple headwinds (inflation; 9-12 month inventory cycle; high collection costs), management expects improvement over the medium term, noting costs are down >10% from peak.
Seqirus (US$1,108m; 33% op income) was underpinned by strong uptake of seasonal influenza vaccines (North Hemisphere c110m doses; >US$1bn in the US) an ongoing shift to more differentiated products, against a backdrop of reduced immunisations.
Vifor (US$400m; 12% of op income) saw sales up 15% (US$889m; 5 month contribution), with integration and cost synergies (US$75m/3 years) on track.
We view the R&D pipeline as in the “best shape” it has been in and looks set up for sustainable and profitable growth into the future, with near term US launch of Haemophilia B gene therapy Hemgenix.
Despite unfavourable Seqirus seasonality and Behring margin headwinds, FY23 guidance was reaffirmed (NPATA +13-18%), implying a solid 2H (+20%+ at mid-point), with full Vifor contribution, Hemgenix US launch and declining plasma costs, with fundamentals remaining “really strong”.
Forecast and valuation update
Our FY23-25 earnings increase modestly (up to c3%), mainly on lower net interest expense, higher Behring and Vifor sales, partially offset by lowered GM.
We roll forward multiples, with our blended DCF, PE and EV/EBITDA based price target increasing to (login to view).
Strong plasma collections with ongoing demand across both Behring and Seqirus, coupled with Vifor’s added breadth, portends strong growth and momentum.
- Hemgenix US launch.
- Garadacimab Ph 3 data.
- Injectafer US heart failure label.
- Slower-than-expected US plasma collections.
- COVID-19 impacts.
- Market share loss.
- Lower uptake of new products.
- Closing/integrating Vifor Pharma.
- FX changes.
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