Australia | Mar 16 2021
This story features CSL LIMITED. For more info SHARE ANALYSIS: CSL
A slump in plasma collections as a result of pandemic-induced lockdowns has put the share price of CSL under pressure. With a vaccine rolling out is it time to buy?
-Further decline in plasma collections could extend Ig shortage
-Generous US stimulus a disincentive to give blood
-Chief ongoing threat to Ig usage is new therapies for CIDP
By Eva Brocklehurst
Vaccine! Vaccine! And the market's attention turns to CSL ((CSL)), anticipating plasma collections can recover now that people are out and about more. Yet, any recovery in foot traffic has a lagged impact on finished product, and generous government stimulus may also limit the desire to return to blood donations.
Ord Minnett expects a recovery in US plasma collections by mid year, as vaccinations provide the confidence that conditions are returning to normal. A solid recovery in FY23 is anticipated, although downside risk to FY22 exists if collections contract, as could be likely, amid the latest round of generous stimulus payments in the US.
Stimulus payments are expected in American bank accounts before the end of March and this could cause a drop in collections over the next couple of months. CSL has indicated increasing donor fees during a period when economic stimulus is being distributed has limited effectiveness.
Given the lead time, a further downturn could mean the impending immunoglobulin shortage extends into the second half of FY22, the broker adds. As a result, Ord Minnett is less inclined to lift its recommendation even though the share price has been weak recently.
Meanwhile, there are no other perceived catalysts for the short term as the pandemic eases and few developments are expected from the R&D pipeline. UBS anticipates a recovery in plasma collections from the fourth quarter of 2021 and while a rolling out of the vaccine should assist in the recovery, this will take time.
Macquarie assesses current foot traffic is still below average at around 100 US-based collection centres. Given the lag between plasma collection and the manufacture of finished product is around nine months, the impact on revenue and earnings for CSL Behring will not be felt until the second half of FY22.
While assuming a recovery occurs at that point, Macquarie envisages downside risk in the event collection volumes do not continue to improve and sticks by its Neutral rating.
Morgans is confident and has upgraded to Add from Hold, believing the weakness in the share price is an opportunity to buy a high-quality business, and noting the pressure on the share price has increased over the last quarter, amid several factors including the plasma supply/demand imbalance, rising costs, US fiscal stimulus and coronavirus variants.
The broker agrees plasma collection will be the chief feature of a recovery going forward and acknowledges potential for a more protracted recovery. Morgans takes what it describes as a conservative approach to plasma collection recovery, estimating a -15% volume decline through the first half and modest improvement into the second half of FY22.
Citi also upgrades to Buy, noting CSL has been the worst performer among the large healthcare companies in the ASX200, underperforming the index by -14% over the year to date. The decline in plasma collections should normalise after the roll-out of the vaccine in the US and the broker suspects upgrades to estimates for FY23 may then follow.
Credit Suisse downgraded to Neutral in the wake of the first half results, noting the company indicated a weaker second half, and suspects plasma collections will not recover to pre-pandemic levels until mid year. Morgan Stanley, too, errs on the cautious side. While its base case is for a strong rebound in collections, this is not until FY23.
While assuming a recovery for immunoglobulin will occur, competitive risks loom for specialty products and amid less substantial increments from Seqirus, in Macquarie's view, resulting in more modest profit growth expectations out to FY23, at around 10% compared with recent years of 14%.
Morgans, on the other hand, envisages upside for Seqirus and the potential for a severe northern hemisphere flu season at the end of the year amid increased susceptibility in the population.
Ord Minnett highlights the chief threat to CSL revenue for the next few years is a potential for new therapies treating chronic inflammatory demyelinating polyneuropathy (CIDP) which, while rare, account for more than a quarter of current immunoglobulin usage.
Citi agrees there is a question regarding whether these new therapies take market share from immunoglobulin and several other issues for the medium term too, such as whether gene therapy will have a significant impact on Idelvion revenue.
Any negative news flow is likely to have a commensurate negative impact on the share price, although the broker points out at this stage it is unclear whether there will be any significant impact on the immunoglobulin market in the longer term.
FNArena's database has three Buy and four Hold ratings. The consensus target is $298.01, signalling 16.1% upside to the last share price. Targets range from $261 (Ord Minnett) to $330 (UBS).
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