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CSL Retains Superior Position In Plasma

Australia | Aug 16 2019

A superior position in plasma collections in the US has delivered benefits to CSL in FY19 and, while competitors are gearing up, brokers believe the outlook for FY20 remains firm.

-Competitors lagging with flu vaccine supply
-Competition heightened, particularly for Berinert and Haegarda
-Is there further upside for the stock?


By Eva Brocklehurst

CSL ((CSL)) has benefitted from a tight plasma market as competitors are having difficulties meeting demand. The company continues to gain market share as a result of its multi-year investment in collection centres.

Citi expects revenue growth in the plasma industry of 8-10% until 2025 and CSL to increase its market share. Macquarie also highlights the competitive advantage of the collection centre network.

Collections may be above market levels and accelerating but as competitors are increasing their capacity, Morgans is more cautious. The broker maintains a Hold rating and waits for a better entry point, believing the stock is expensive.

Based on the company's recent relative share price performance UBS downgrades to Neutral from Buy. The broker believes the stock screens as fair value when compared with large cap listed Australian healthcare peers and, while the business remains a high-quality franchise, this is reflected in current trading multiples.

Management has guided to FY20 net profit of US$2.05-2.11bn. Seqirus, the flu vaccine, remains on track to hit FY20 guidance for earnings of US$200m. Management has noted competitors are lagging with flu vaccine supply because of a change in the strain and, as Macquarie points out, CSL's cell-based flu vaccine can be manufactured more rapidly than traditional egg-based vaccines.

Guidance implies around 15% underlying net profit growth and UBS concedes this is a realistic target, although it will likely require continued improvement in specialty product growth.

Morgan Stanley notes FY19 results were aided by a low tax outcome but expects FY20 will be robust. Furthermore, the broker believes the market will pay a premium to traditional valuation methodologies for CSL as there is a scarcity of large cap growth stocks on ASX, and there are high returns on equity. There is also relatively low leverage on the balance sheet.

Ord Minnett asserts a strong consistent earnings growth profile warrants a premium, and solid double-digit earnings are expected in FY20 and beyond. The broker highlights the tightness in the market for immunoglobulin, confirmed by recent statements from the US Food and Drug Administration. This raises the risk of rationing, although underpins the ongoing opportunity for CSL, as long lead times limit competitor ability to respond rapidly.


Citi asserts that specialty products are the most unpredictable business line in terms of forecasts. While expecting continued growth, the broker is conscious there are competitors for Haegarda and Kcentra. Morgan Stanley, too, envisages some temporary constraints on the company's ability to supply specialty products as the competitive dynamics evolve.

Credit Suisse is another broker that highlights the increased competition facing the specialty portfolio, particularly for Berinert and Haegarda, and retains conservative estimates for the specialty division, expecting 5% sales growth.

While Haegarda and Kcentra have both experienced moderation, Macquarie assesses momentum for Idelvion and Seqirus is positive and should underpin earnings growth, in combination with immunoglobulin.

In immunoglobulin in FY19, Privigen and Hizentra revenue increased 23% and 22% respectively. Meanwhile, albumin also recovered materially in the second half because of a rebound in growth in China after temporary restrictions on imports in the first half. This was partially offset by subdued trends in the US.

More Upside?

Credit Suisse upgrades to Outperform from Neutral, believing there is more upside in the share price, noting CSL is trading at a discount to key Australian healthcare peer Cochlear ((COH)) and in line with ResMed ((RMD)).

The broker expects earnings to be supported by the company's leading position in a tight immunoglobulin market where competitors are experiencing shortages and disruptions. Stronger growth in Chinese albumin is also expected in the first half.

An item of interest Macquarie notes from the results is the company's acquisition of a saline and sodium citrate manufacturing facility, which vertically integrates the company supply chain.

FNArena's database shows three Buy ratings and four Hold. The consensus target is $241.56, suggesting 4.4% upside to the last share price. This compares with $213.40 ahead of the results.

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