CSL: Donors need not a flip of a switch
About the author:
- Author name:
- By Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 20 August 2020, 4:00 PM
- Sectors Covered:
- FY20 results were solid and roughly in-line, with better than guided NPAT (helped by lower tax), strong sales across key products and good operating leverage.
- Ig growth continues to impress and Seqirus was solid on COVID-19 related demand, with Specialty and Haemophilia growth more modest, and declining Albumin sales, well flagged on transition to direct China distribution.
- While we expect the demand for plasma, recombinant products and vaccines to remain strong, and view reversion of China Albumin growth as fortuitous, soft FY21 guidance (NPAT 0-8%) reflects plasma collection challenges that may persist longer than the market anticipates as donor behaviour isn't easily swayed.
- We adjust FY21-22 estimates and roll forward our valuation multiples, with our price target increasing (Morgans clients can login to view detailed reports and price targets).
Net profit > guidance (tax helped); rev, op income solid, margins up
FY20 results were roughly in line, with NPAT above guidance (+17% in cc; US$2,103m; guidance +10-13%; Morgans US$2,118m), but helped by lower tax (18.3%; 1H, 20% 2H,15%), on solid revenue (+9% in cc; US$9,151m; Morgans US$9,158m) and strong underlying profit (+15% in cc; US$2,717m; Morgans US$2,791m).
GPM improved 140bp to 57.4% (in cc), on favourable price/mix/geography, with OPM up 170bp (in cc) to 31%.
OCF improved 51% to US$2,488m, impacted by the changing albumin distribution model in China and good WC management, supporting the final dividend (US$1.07, +9.2%).
Soft guidance reflects plasma supply/demand imbalance…
While we believe demand for plasma, recombinant products and vaccines is likely to remain solid, CSL faces challenges in plasma collections due to the evolving COVID-19 pandemic.
Reflective of this supply/demand imbalance, FY21 guidance is soft (cc NPAT US$2,100-2,265bn, 0-8%, on 6-10% revenue growth).
What we like includes:
- Jul/Aug plasma collections trending up, albeit not as much as expected.
- FDA lowered plasma hold to 45d (from 60d).
- Numerous COVID-19 initiatives (eg donor pre-assessments, enhanced cleaning/disinfectant procedures
- Safe passage letters).
- No supply chain interruptions.
- Seqirus profitability strong (FY20 EBIT US$265m, helped by 11% fees on pandemic revenues), with up to 60m doses of seasonal influenza vaccines for NA flu season and margins uplift on US/EU/UK approval for Fluad QIV in 65+ year olds.
- Sales of Albumin to normalise (est cUS$130m profit gain), with no supply constraints.
- Kcentra to continue to perform in peri-op bleeding (FY20 +12%), with no COVID-19 impact seen.
…but the pandemic continues and behavioural change is difficult
Ares of concern include:
- Collections fell 5% in FY20 (>30% in 4Q), with “a lot of uncertainty” as the pandemic continues to evolve.
- Plasma donor returns takes effort and time, more so with COVID-19 risks.
- Collection costs to remain underpressure (FY20 +9%), with increased staffing (who receive supply payments), SG&A (eg social media/marketing, saftey measures).
- More PPE.
- US unemployment benefits.
- 2HFY20 immunoglobulin growth slowed (+18% vs 1H +26%).
- Ex-normalistion of Albumin sales into China, NPAT guidance -3% at the mid-point; capex step-up (FY21 cUS$1.6bn, +33%), with ROIC falling (FY20 21.6%, -270bp) with use of “unproductive capital” on the B/S and uplift expected in 2-3 years.
- GM expected to be flat to down.
- R&D expenses c10-11% of sales.
Remains a core holding; continue to wait for a better entry point
Our FY21-22 NPAT estimates decrease up to 4.1%.
We roll forward our valuation multiples, which sees our DCF/SOTP-based price target increase (Morgans clients can login to view detailed reports and price targets).
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