CSL Ltd: 1H extraordinary - time required to normalise

About the author:

Dr Derek Jellinek
Author name:
By Dr Derek Jellinek
Job title:
Senior Analyst
Date posted:
18 February 2021, 4:30 PM
Sectors Covered:

  • 1H results were solid, with better than expected top/bottom line growth and improving OCF, but outside a positive mix, a significant percentage of the gains were driven by one-offs and lower expenditures.
  • Seqirus was the standout on pandemic driven demand for influenza vaccines, while Behring gained from Albumin sales on the transition to direct China distribution and cost-outs, but Ig growth was modest and Specialty /Haemophilia fairly flat.
  • While plasma collections are improving, they remain down c20% yoy. As sales are constrained, costs increasing and Seqirus seasonality unfavourable, 2H will be considerably softer (NPAT -47-58%). We view reiterated FY21 guidance as more “prudent” than conservative, and see risks bleeding into FY22.
  • We adjust FY21-23 estimates, with our price target decreasing (login to view). Hold.

Profit and margins hitting highs, but mainly driven by one-offs

1H results were solid, beating on both top (US$5,739m, +17% cc; Morgans US$5,432m) and bottom lines (US$1,810m, +44% cc; Morgans US$1,369m). Underlying profit growth also impressed (EBIT US$2,358m, +42%; Morgans US$1,827m), with margins expanding 790bp to 41.1%.

However, c50% of these gains were driven by one-offs (US$80m COVID-19 government payment; Albumin sales +93%) and lower expenses (opex -8%, US$95m).

OCF improved 87% (US$2,321m), mainly on lower donor payments and cost-outs, supporting an uptick in the dividend (US$1.04ps, +9%).

Flu vaccines outstanding; Albumin strong, Ig modest, Haem soft

Seqirus (30% of profit) was exceptional (US$1,340m, +40% in cc, EBIT US$693m, +112%, margin +15.3pp to 51.7%), underpinned by increased sales of seasonal influenza vaccines (+44%; record doses >100m) and ongoing shift to more differentiated products.

Behring (70% of profit) sales growth was solid (US$4,256m; +11% in cc), with margins up 490bp to 39.1% (the highest levels yet seen).

The gains seem mainly attributable to lower expenses and higher sales of Albumin (US$546m, +93% in cc) on the well flagged transition to the new direct distribution model, as growth in Immunoglobulin was modest (Ig; +7%) and roughly flat across both Specialty (US$899m, +3% in cc) and Haemophilia (US$563m, +1% in cc).

Profit 1H skewed; it remains all about plasma collections

FY21 guidance was reiterated (cc NPAT US$2,170-2,265m, 3-8%; rev 6-10%), indicating earnings are heavily skewed to 1H (2H NPAT US$360-455m, -47% to -58%).

While CSL Ltd (ASX:CSL) has numerous initiatives to drive plasma collections (eg enhanced marketing; new technologies; better donor programs) and collections have improved off their nadir (-40%+ last May) they remain down (20% in December; dipped in January on government stimulus; and now are impacted by inclement weather), and look to be a constraint on future sales (given 9 month cycle time).

Coupled with increasing costs (plasma up 20% per litre; R&D c10-11% of sales), we see increasing risk to outyear earnings.

Remains a core holding; likely to track sideways over short term

Our FY21-23 earnings estimates decrease up to 3%. Our DCF/SOTP-based price target decreases (login to view). We believe pandemic challenges will linger over the short term.

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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.

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