Three reporting season scenarios to consider for CSL: Morgan Stanley

Morgan Stanley says changes in immunoglobulin yield could be "the most important share price driver" for CSL (ASX: CSL) heading into reporting season.

For the uninitiated, CSL is one of the world's largest producers of immunoglobulin (lg) products, which is used to treat a variety of conditions such as immunodeficiency, autoimmune disorders and other infectious diseases.

The all-important ingredient is derived from plasma, to which CSL has more than 300 plasma collection centres stationed around the world, primarily in the US.

CSL plasma collections: Volume now exceed pre-pandemic levels (Source: FY22 results presentation)

Three potential outcomes for reporting season

CSL is set to report its first half FY23 results on February 14 where Morgan Stanley will be fixated on lg yields.

The three potential outcomes for this event include:

• Scenario 1 (50% probability): CSL posts an lg process with 5% yield improvement whereby Behring gross margins could rise approximately 300 bps by FY25. Shares rise ~10% on the day of the result

• Scenario 2 (30% probability): CSL posts an lg process with 10-15% yield improvement which sees Behring margins rise by 450-550 bps by FY25. Shares rise ~15%

• Scenario 3 (20% probability): CSL posts an lg process with a 'small incremental yield improvement' and share price downside sits at ~5%

The investment bank's base case is Scenario 1. The note retained an Overweight rating on the stock with a $354.00 target price.

Other key factors

Morgan Stanley said they will also look out for updates on the progress of the Rika roll-out and cadence of plasma collection centre rollout.

CSL has targeted 20-40 new plasma collection centres in the last three financial years. In FY22 they opened 27 new centres, 25 in FY21 and 40 in FY20.

The Rika plasma donation system received US FDA clearance in March 2020 and designed to improve the overall donor experience. In summary, the system will:

• Reduce bio-hazard waste and use less packaging material

• Reduce plasma collection times by up to 30%

• Ensures there is not more than 200ml of blood outside the donor's body, improving their comfort and red cell loss