Margin momentum building

RESULTS

Need To Know

• Results pre-announced in mid-June, with FY23 NPATA rising 20% on a constant currency basis 
• Behring gross margin is still expected to recover within 3-5 years, with new yield maximisation strategy unveiled
• FY24 outlook is largely unchanged, expecting ~13-17% constant currency NPATA growth to ~$2.9-$3.0bn, although potentially conservative
• We expect continued mid-high teen EPS growth over the medium term, underpinning our Buy rating

Investment Implications

CSL's FY23 results were largely pre-announced in mid-June, reporting revenue growth of 31% (on a constant currency basis) to $13,310m, and NPATA (which excludes impairment and amortisation of acquired intellectual property) growth of 20% to $2,610m, vs previous expectations of $2,550m. The FY24 guidance of ~13-17% growth, or ~$2.9-3.0bn was unchanged. Foreign exchange could play a significant role in the actual FY24 outcome, after having a $245m impact on the FY23 result.

Ig revenue was up 21%, with strong growth across all geographies. This was driven by Privigen +29% and Hizentra +12% as global supply continues to recover strongly. Albumin +11% saw strong growth in China as Covid restrictions eased, and supply improvement helped US and EU sales. Plasma collections were up 31% and are now at record levels. CSL was also able to reduce cost per litre by 14%. The Mexico border reopening in September 2022 also assisted the recovery. CSL has begun undertaking several manufacturing initiatives to improve yield, which we expect will assist gross margins in FY24 and beyond.

Vifor contributed 11 months, growing sales 14%, with growth across all product areas. The integration is well advanced and cost synergies remain on track. Injectafer being approved by the US for the treatment of iron deficiency and Ferinject launching in China in April 2023 set Vifor up for a strong FY24.

Seqirus grew revenues 9% driven by season flu vaccines, in particular FLUCELVAX which increased 30%. This was achieved against a backdrop of reduced immunisation rates, highlighting the strength of Seqirus' strategy with its differentiated product portfolio.

CSL's R&D pipeline remains robust (R&D day on 16 Oct 2023 is the next update) and is set to underpin earnings growth over the medium-long term. Capex spend is set to continue reducing as a % of revenue, and down ~30% on FY23 to just $800m. G&A of revenue is also set to continue falling (from ~8% in FY21 to under ~6% in FY23) as CSL further leverage opportunities for efficiencies.

Investment View

We expect CSL to continue to grow earnings in the mid-high teens over the next 2-3 years driven by continued improvement in plasma collections and margins, albeit slightly longer dated than previously expected. 

We expect FY24 guidance could end up being conservative given robust demand profiles for CSL's products and the likely improvements in margins as the cost of plasma continues to decrease and yield increases. 

If CSL can continue to execute its strategy and effectively integrate the Vifor acquisition synergies, earnings growth can remain elevated for the next 3-5 years. 

CSL rarely trades below ~30x PER and in our view, current valuations are attractive to begin building or increasing a position.

Figure 1: CSL has rarely traded below 30x PER