CSL Ltd: 1H extraordinary - time required to normalise
About the author:
- 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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