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:

Healthcare

• 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.

Event

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%.

Analysis

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).

Investment view

Strong plasma collections with ongoing demand across both Behring and Seqirus, coupled with Vifor’s added breadth, portends strong growth and momentum.

Price catalysts

• Hemgenix US launch.
• Garadacimab Ph 3 data.
• Injectafer US heart failure label.

Risks

• Slower-than-expected US plasma collections.
• COVID-19 impacts.
• Market share loss.
• Lower uptake of new products.
• Closing/integrating Vifor Pharma.
• FX changes.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

If you would like more information, please contact your adviser or nearest Morgans office. 

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.