CSL upgrades their FY17 outlook
About the author:
- Author name:
- By Dr Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 23 January 2017, 8:51 AM
- Sectors Covered:
- Healthcare
Key points
- CSL Limited (CSL) upgraded its FY17 outlook, calling for constant currency adjusted NPAT growth of 18-20% (prior c11%).
- Strong sales of immunoglobulins and specialty products in 4QCY16 underpinned the gain, with demand fulfilled on competitors stumbling, driving 1HFY17 NPAT guidance to cUS$800m (+33% yoy), solid market share gains and no Trump effect.
- How long can CSL hold onto its increased market share? 2H implied growth of 14% looks reasonable, but may prove conservative.
Core businesses tracking above market expectations
CSL upgraded its FY17 outlook, calling for constant currency adjusted NPAT growth of 18-20% (prior c11%; implies NPAT of US$1359m-1382m), excluding one-off gains and costs associated with the acquisition of the Novartis influenza vaccines business.
Management flagged that the upgrade follows "strong sales performance, particularly by immunoglobulins and specialty products in the most recent financial quarter", with the company able to "respond quickly and fulfill demand arising from current atypical market activity". As such, 1HFY17 NPAT is expected to be cUS$800m (+33% yoy; includes a FX headwind cUS$20m). Further insight on 1HFY17 is expected on the 15 February 2017.
Making hay while the sun shines...no issue with Trump here
Management indicated that it is seeing tightness in the plasma market and is dipping into inventory reserves to satisfy strong demand. CSL are clearly benefiting from its continued focus on opening more collection centres (>20/yr for 3 years), much to the chagrin of its competitors. Moreover, the gains are volume driven, as price increases have had very little impact and nothing appears to have changed on this front despite all the countless headlines/tweets/chats around drug pricing and uncertainty around Trump-induced changes to the US healthcare system.
We have seen CSL exploit competitive gaps before, but inevitably gains mean revert. The key question now is how long can CSL hang on to its increased market share? Looking at 2H implied growth of 14% looks reasonable, but may prove conservative.
Earnings changes...tracking the top end of updated guidance
We have increased our sales and margin assumptions across the main Behring product lines (c70% immunoglobulin; 30% speciality - Kcentra/Beriplex), resulting in an uplift of up to 3.3% to top line estimates and up to 5.5% to underlying earnings.
Investment view
While strong share gains increase our confidence in the future growth trajectory, mean reversion is inevitable, sector sentiment remains weak and the current valuation looks a little extended. CSL remains a core portfolio holding and we retain our Add recommendation, but more active short-term focused investors could look to trim any overweight positions.
More information
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