Reduced US Swine Flu Order Has Little Impact On CSL

This story features CSL LIMITED. For more info SHARE ANALYSIS: CSL

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

Recent data suggest Americans are not making it a priority to take swine flu shots in the amount that had been expected, an outcome that has seen the US Government reduce its H1N1 or swine flu order with CSL ((CSL)) from 36 million doses to just 14 million doses, with the change having a corresponding impact on group earnings.

This impact does not appear too severe according to Bank of America-Merrill Lynch as it notes CSL has been able to offset some of the reduction by redistributing vaccines to Germany and Singapore, while also gaining some cost claw back from the fill and finish syringes already completed. Overall BA-ML estimates CSL will secure around 80% of the total $300 million swine flu order in FY10.

UBS adds the earnings impact of the order reduction is not a simple calculation as even before the order was cut, CSL had switched production to seasonal flu vaccine and so continues to operate at a high capacity. This suggests little in the way of any material sales gap as all output will be utilised and sold given the swine flu antigen will be added to the 2010 seasonal vaccine.

On BA-Merrill Lynch numbers this means a reduction of just 1.7% to FY10 earnings, with some other changes in later years reflecting changes to currency estimates as well. This leaves BA-ML forecasting earnings per share (EPS) of 190c in FY10 and 223c in FY11, while JP Morgan has reduced its EPS estimate by 2% in FY10 to 170.7c. Its FY11 number is essentially unchanged at 177.7c.

Compared to the 1.7% cut to FY10 forecasts by UBS to 194c, Deutsche Bank has lowered its FY10 forecast 2.3% to 180c while its FY11 EPS estimate is 209c, which compares to consensus forecasts according to the FNArena database of 184.7c for FY10 and 209.9c for FY11. UBS is at 215c in FY11.

One factor supporting UBS’s higher than consensus estimates is that the Australian Government has signed a new eight year plasma fractionation agreement with CSL, at terms in line with what it had expected. While the deal is relatively small in context it is a positive, UBS estimating it could grow to be worth more than 4% of group earnings before interest and tax annually compared with around 3.6% now.

Given this, UBS retains its Buy rating on the stock with a price target of $41.10, the highest target in the FNarena database. The average target according to the database is $37.40, with JP Morgan retaining its $39.81 target despite the minor change to its estimates following news of the US contract reduction. BA Merrill Lynch lowered its target to $38.10 from $38.90 to reflect the changes to its earnings forecasts. Overall the database shows CSL is rated as Buy six times and Hold four times.

Shares in CSL today are slightly higher and as at 12.35pm the stock was up 7c at $32.00, which compares to a trading range over the past year of $28.43 to $38.52.

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