CSL Limited

Company Overview: CSL Limited (ASX: CSL) is engaged in the development, manufacturing and marketing of pharmaceutical and diagnostic products, cell culture media and human plasma fractions. The company uses the latest technologies and has been on track to save numerous lives since 1961. CSL has two businesses, CSL Behring and Seqirus, offering life-saving products to over 100 countries and employing more than 25,000 people. The company was listed on ASX in June 1994.

CSL Details

CSL Rides on Geographical Expansion & Acquisition Synergies: On 14 December 2021, CSL revealed it had inked a deal to conduct a tender offer to acquire 100% of Vifor Pharma Ltd. On 3 March 2022, CSL closed the main offer period to acquire all publicly held shares of Vifor Pharma Ltd, with 74% of Vifor shares tendered. This acquisition depicts a meaningful acceleration of CLS’s 2030 strategy by further boosting its focus on therapeutic leadership, innovation, and sustainable growth. The buyout is in line with CSL’s strategy to strengthen its market position as a leading pharmaceutical company.

Past Performance Highlight; Analysis by Kalkine Group 

Sneak Peek at 1HFY22’s Key Results:

• Rise in Total Revenues: The company provided its 1HFY22 results for the period ending 31 December 2022, wherein it reported an increase in its total revenue of 5% Y-o-Y to US$6,041.2 million. On a constant currency basis, revenues went up by 4% year over year. During the period, CSL witnessed a growth of 134% in HPV royalties, as sales rebounded strongly to pre-COVID levels following robust demand and increased supply.
• Net Profit After Tax Highlight: In 1HFY22, the company saw a decline of 3% Y-o-Y in NPAT to US$1,760 million. As a result, EPS went down to 3.85 US cents, from 3.98 US cents reported in 1HFY21, on a constant currency basis, owing to higher operating expenditure.
• Enhancing Shareholder’s Value: The company declared an interim dividend of US$1.04 per share. When converted to Australian currency, the interim dividend stood at ~A$1.46 per share, representing a rise of 8% on pcp.
• Liquidity Position: The company exited 1HFY22 with a cash balance of US$6,334.3 million, up from US$1,808.8 million as at 30 June 2021. The company’s total debt at the end of the period came in at ~US$5.568.7 million. CSL remains well-positioned for future growth and remains open to utilising its debt capacity to fund accretive initiatives for shareholders' returns.

Segmental Highlights; Analysis by Kalkine Group

Key Metrics: EBITDA margin for 1HFY22 stood at 44%, higher than the industry median figure of -54.5%. The current ratio stood at 4.95x, up from the year-ago figure of 3.05x, demonstrating improved short-term financial liquidity.

Profitability Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 15.12% of the total shareholdings, while the top 4 constitutes the maximum holding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 4.26% and 2.93%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:   The company is exposed to risks inherent in the worldwide pharmaceutical industry, specifically the plasma therapies industry. Headwinds for the sector consist of government inspection of high drug costs, pricing and competitive stress, generic competition for best-seller treatments, along with significant pipeline setbacks. CSL is also exposed to other business risks such as research and development/commercialisation risk and, patient safety & product quality risk.

Outlook:

• Looking forward, the company expects plasma collections to improve and are expected to underpin stronger sales in its core plasma therapies. Based on increased demand for influenza vaccines together with CSL’s differentiated product portfolio, it expects Seqirus to perform well and deliver another profitable year.
• The company expects NPAT for FY22 to be in the range of $2.15 billion to $2.25 billion at constant currency.
• CSL also expects to continue to grow via developing differentiated products and expanding its market presence. The company expects that the demand for plasma recombinant and vaccine products is likely to be robust, particularly for immunoglobulins and influenza vaccines.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~15.13% in the past three months. Currently, the stock has a 52-week high and low level of $319.78 and $240.1, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peer average, considering the rise in top-line, acquisition synergies, increase in the cash balance, etc. For the purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), Nanosonics Ltd (ASX: NAN), and other have been considered. Considering the aforesaid fact, rise in top line, geographical expansion, decent long-term outlook, stronger sales in its core plasma therapies, current trading levels, and indicative upside in the valuation, we recommend a “Buy” rating on the stock at the closing market price of $257, up by ~0.136% as on 9 March 2022. Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

CSL Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.