Reporting Season

CSL falls following disappointing FY22 result, no "quick fixes” to a storm of challenges: Chairman warns investors

By Market Index
Wed 17 Aug 22, 11:35am (AEDT)
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Source: Unsplash

Key Points

  • CSL posted a net profit fall of 6% to US$2.255bn, at the top end of guidance
  • CSL is guiding to NPAT for FY23 of between US$2.4bn to US$2.5bn, which at constant currency marks 7.6% to 11.8% growth on FY22
  • Morgan Stanley expects the Vifor Pharma deal to push CSL’s share price to $400 by 2025

CSL (ASX: CSL) worked hard to please the market this morning, after reassuring investors the biotech giant is poised for strong sustainable growth and guiding to net profit after tax (NPAT) for FY23 of between US$2.4bn to US$2.5bn, which at constant currency marks 7.6% to 11.8% growth on FY22.

Guidance excludes CSL’s $16.4bn takeover of Swiss renal treatments company Vifor Pharma (and costs associated with the acquisition), which is estimated to be 8% earnings per share-accretive to CSL in FY23.

FY22 NPAT down 6%

But due to lower plasma donations, which constrained sales of its core immunoglobulin products, CSL posted a net profit fall of 6% to US$2.255bn, at the top end of guidance, and broadly in-line with brokers expectations.

However, due to what management described as exceptional” performance by CSL’s flu vaccine business Seqirus, revenue was up 2% to US$10.14bn.

Underpinning the result were seasonal influenza vaccine sales, up 16% and hitting a record volume of 135m doses distributed, which catapulted US vaccine sales above US $1bn.

What spooked investors

Neither reassurances the group is poised for growth, nor a final dividend of US$1.18 ($1.68) per share, up 6% on FY21 - bringing the total year dividend to US$2.22 ($3.11) - could staunch negative market sentiment this morning, with the CSL share price 5.5% lower at the open.

Also weighing on market sentiment this morning were reminders by chairman Brian McNamee that there are “no quick fixes” to a storm of challenges bearing down around Australia’s biggest health company.

“I can assure you that we will work to control what is within our control with the people who rely on our vaccines and therapies as our priority. As always, in doing so we will continue to strive to create value for shareholders," McNamee noted.

Highlights within today’s result:

  • Total revenue up 3% in constant currency (CC) to US$10,668m

  • Gross profit down 1% CC to US$5,786m

  • 27 new centres opened to attract lapsed and new donors through its doors in FY22

  • Major boost to investment in R&D to US$1,156m, up 17%

Sustained growth and Vifor upside

In a decidedly more chipper tone than his chairman, CEO Paul Perreault reassured investors that the strong growth witnessed in plasma collections is expected to continue as covid recedes and underpin strong future sales growth in our core plasma therapies.

He also expects the influenza business, CSL Seqirus, to deliver another strong year driven by demand for its differentiated products.

“The current higher cost of plasma is also expected to prevail into FY23,” said Perreault.

“CSL Vifor adds a high-value and complementary portfolio of products and market leading positions in renal disease and diseases of iron deficiency to CSL… I remain confident in the value CSL Vifor will bring to CSL shareholders, adding to the sustainability of CSL’s growth.”

Perreault also flagged that CSL was targeting a 40% reduction in “scope one and two” emissions by 2040.

image
CSL share price over 12 months.

 

What brokers think

While CSL’s share price has gone nowhere in 12 months, shareholders have endured a roller coaster ride, which saw the share price fall to a low $240 per share in March, before climbing back to almost $300.

 

Consensus on CSL is Moderate Buy.

 

Based on Morningstar’s fair value of $267.27 the stock appears to be overvalued.

 

Goldman Sachs has a Neutral rating on CSL with a target price of $307.00.

 

Based on the six brokers that cover CSL (as reported on by FN Arena) the stock is currently trading with 14.6% upside the target price of $322.32.

 

Morgan Stanley expects the Vifor Pharma deal to push CSL’s share price to $400 by 2025.

 

The broker notes US plasma collection volumes for Haemonetrics increased 40% year-on-year, twice historic seasonality, and the company increased FY23 plasma growth guidance to 15-20% from 7-12% - and expects similar trends for CSL.

 

The broker’s overweight rating and $312 target are unchanged

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