CSL Ltd: 1H above expectations; the “tide is beginning to turn”

About the author:

Author name:

By Dr Derek Jellinek

Job title:

Senior Analyst

Date posted:

17 February 2022, 11:30 AM

Sectors Covered:

Healthcare

• 1H results were better than expected, albeit in line with management’s assumptions, with net profit down 5% in cc on 4% revenue growth.
• Seqirus was the standout on pandemic driven demand for influenza vaccines, while Behring went backwards as plasma-based products were constrained on tight supply and higher costs, although certain Specialty product saw gains.
• Promisingly, plasma collections continue to improve, although remain slightly below pre-pandemic levels, and while industry wide issues remain (eg Omicron; staffing; increase costs), the worst appears behind us.
• While reiterated FY22 guidance sees 2H considerably softer (NPAT -13% to -33%), mainly on unfavourable Seqirus seasonality and higher costs, management flagged the bottoming of Behring GMs and is confident on future growth.
• We adjust FY22-24 estimates, with our price target decreasing to (login to view). Add.

Event

1H results were better than expected, albeit in line with management’s view, with NPAT US$1,760m (-5% cc; Morgans US$1,454m) on revenue US$6,041m (+4% cc; Morgans US$5,9146m), which includes Vifor Pharma costs (US$17m).

GM contracted (340bp; 57.1%) on higher plasma costs, while an 11% increase in opex saw underlying profit down 8% (US$2,215m) with margins -440bp to 36.7%.

Seqirus (40% of profit) was exceptional (revenue US$1,685m, +17% in cc, EBIT US$884m, +24%, margin +380pp to 52.5%), while Behring (60% of profit) went backwards (EBIT US$1,331m; -22% in cc), with margins down 800bp to 30.6%. 

FY22 guidance reaffirmed: cc NPAT US$2,150-2,250bn (-9% to -5%) and now includes US$90-110m in Vifor Pharma costs (so essentially a c5% upgrade).

Analysis

Results were driven exclusively by Seqirus, underpinned by record sales of seasonal influenza vaccines (+20%; North Hemisphere c110m doses; >US$1bn in the US) and an ongoing shift to more differentiated products. 

Behring disappointed as plasma-based product sales were flat to down (Immunoglobin (Ig) -9%; Albumin +1%) as plasma supply tightness continued to impact growth, but some non-plasma-based products managed to perform much better (Hemophilia recombinants +12%; Specialty peri-op bleeds +8%). 

Encouragingly, plasma collections continue to improve (volumes +18%), although remain just below pre-pandemic levels, with growth into CY22 “encouraging” and numerous initiatives (eg enhanced marketing; new technologies; better donor programs; 18 new collection centres opened, targeting 35 total in FY22) expected to underpin future sales growth, despite remaining industry wide issues (eg omicron; staffing; increased costs). 

Unfavourable Seqirus seasonality, tight plasma supply and higher costs sees implied 2H earnings softer (NPAT -13% to -33%), but management drew a line in the sand, flagging the bottoming of Behring GMs and remains “very confident” in the “really strong” fundamentals and that “demand has not gone away”.

The US$11.7bn (US$179.25/sh) tender offer for Vifor shares closes 2 Mar-22, with integration planning underway and deal closure by the end of FY22.

Forecast and valuation update

Our FY22-24 earnings forecasts decrease modestly (up to 2%), mainly on lowered GM (150bp) and increased operating expenditures across the Behring division. 

Our blended DCF, PE and EV/EBITDA based price target decreases to (login to view).

Investment view

While near term challenges remain, the ongoing recovery in plasma collections, coupled with management’s confidence, paints a favourable earnings picture.

Price catalyst

Vifor Pharma tender offer closing mid-CY22.

Risks

Slower-than-expected US plasma collections; COVID-19 impacts; market share loss; lower uptake of new products; Closing/integrating Vifor Pharma; FX changes.

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