CSL 1H solid

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
16 February 2017, 10:27 AM
Sectors Covered:

Solid underlying growth helped by competitor stumbles...

1H17 underlying NPAT was in-line, as expected given its pre-release (US$806m, +36.2% cc; ex-Novartis acquisition; Morgans US$800m), with strong underlying profit (EBIT US$1,095m, +38% cc) underpinned by solid product sales (US$2,963m, +18% cc).

Key highlights

  1. above market Immunoglobulin sales (US$1,426m; +22% cc) on Privigen demand (+34%), supported by competitor stumbles, and Hizentra (+14% cc) new patient starts, balanced strength in Albumin (US$433m; +19% cc);
  2. specialty products (US$590m, +25% cc), on strong underlying demand and competitor issues;
  3. Haemophilia was soft (US$514m, +2% cc) as solid recombinant sales (+15% cc) on the back of strong Idelvion uptake, were pulled down by softness in Helixate and plasmaderived products (-6% cc);
  4. Seqirus (+14% cc) remains on track, targeting breakeven in FY18 and sales/EBIT of US$1bn/20% in FY20;
  5. EBITDA margins were higher (+530bp to 34.5%); 6) OCF was down 5.8% to US$664.2m, mainly on tax payment timing, but supporting 10% growth in the dividend (US$0.64).

…but how long can CSL hold onto its newly minted market share?

Clearly, CSL benefited from competitor stumbles in both Immunoglobulins and Specialty segments, putting up cc growth of 22% and 25%, respectively.

While management retained FY17 guidance (cc NPAT 18-20%), indicating that competitors have resolved "most issues" and pointed out several 2H headwinds (eg R&D phasing; increased interest expense; and typical Seqirus seasonality 75/25 split), we believe 2H implied growth of c3.5% may prove conservative in light of the portfolio’s breadth/depth and extended historical exploitation of competitive gaps.

Earnings changes…tracking above the top end of guidance

We have modestly adjusted our FY17-19 earnings estimates, with FY17 estimates exceeding guidance. Our DCF/SOTP-based price target increases on FX changes and adjusted multiples to more historical levels. (Access to share price target for Morgans clients only.)

A core holding, but trim overweight positions on a tactical trade

While we remain confident in the future growth trajectory, sector sentiment remains weak and valuation a bit extended so we would be happy to take profit in any overweight positions as a tactical trade for more nimble investors.

More information

Morgans clients can login to view our detailed report and share price target for CSL Limited (CSL). Alternatively, please contact your nearest Morgans office for access.

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.

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