Collecting plasma has not been easy throughout the pandemic and this has affected CSL’s core immunoglobulin businesses. The 1H22 result now shows that the recovery is underway.
CSL’s CEO Paul Perreault noted the industry-wide constraints on collecting plasma had impacted the company’s core immunoglobulin franchise. Multiple workarounds have enabled a significant improvement in collections so that the recovery can be declared well underway. 1H22 collections are already up 18% and this sets a high growth base for FY23f.
The CSL Behring segment reported flat revenue for the period, but EBIT shrank 22% (constant currency basis) with margins slumping 800bp to 30.6%. Behring was partially saved by some one-offs such as an estimated COVID vax boost of around US$100 million and HPV of US$121 million. Both carry margins above 75%. Without the one-offs, therefore, Behring’s result would have materially lower.
Not all of CSL’s businesses depend on plasma collections, so the excellent outcome for Seqirus was a welcome antidote to Behring. In fact, Seqirus saw a record 110 million flu doses into the northern hemisphere 21/22 season and US$1 billion of seasonal flu sales. Seqirus has been awarded a new US pandemic contract for two flu candidates. Seqirus revenue growth of 17% (CC) was all price driven (7% price and 11% mix) as lower priced egg-based vax was superseded by higher priced QIV including cell and adjuvanted products. EBIT of US$884 million was a 24% CC increase.
The major news during the half year was CSL’s acquisition of Vifor Pharma for US$12.3 billion in cash. This will give CSL a big seat in the global nephrology market estimated to be worth US$25 billion by 2026 from around US$13 billion today. Vifor specialises in renal disease, dialysis and iron deficiency which is complementary to CSL’s existing therapeutic areas.
Investment view
Even though CSL Behring’s half year result was hit hard by COVID, at a group level the result delivered about 80% of reaffirmed FY22 net profit guidance, still set at US$2.15-2.25 billion. This seems extraordinarily conservative even allowing for the yet to be settled Vifor transaction and the emerging recovery in plasma collection volumes. Consensus forecasts appear light, in our view and hence the PE ratio of 44x FY23f is unrealistically high. We anticipate a guidance upgrade that will require double-digits to reflect reality.
Risks to investment view
There is some execution risk for the Vifor Pharma acquisition with completion not expected until the middle of CVY22. Global blood products markets have been impacted (plasma collections) and this may also present challenges if further variants emerge causing disruptions.
Recommendation
We have retained our Buy recommendation and see FY23f as the key earnings recovery year.
