Australia | Feb 23 2012
– CSL interim better than expected
– New products and markets an important earnings driver
– Ratings upgrades follow the profit result
By Chris Shaw
Interim earnings for CSL ((CSL)) fell by 3% to $483 million, but currency headwinds meant the headline result masked strong underlying performance in the period. On a constant currency basis, half year net profit after tax for CSL actually increased by 16%, well ahead of guidance of a 10% increase.
In assessing the result, Macquarie noted Ig remains the major growth engine for CSL, delivering a 24% increase in revenue in US dollar terms relative to the previous corresponding period. Even more positive for Macquarie was growth in secondary plasma products, which reported a 17% increase thanks to strong albumin sales in Asia, strong specialty sales into central Europe and strong haemophilia sales in Russia and Brazil.
The fact secondary product sales grew so strongly is significant as Macquarie notes it reduces the risk of margin pressure for CSL. This is a positive for earnings going forward and sees Macquarie lift its earnings per share (EPS) estimates by 3-9% through FY14.
Others such as BA Merrill Lynch and Credit Suisse have also lifted EPS forecasts for CSL post the result, while Bell Potter went the other way and trimmed its full year numbers. Consensus estimates according to the FNArena database now standing at 187.3c this year and 218.2c in FY13.
The fact CSL is making advances across all key product groups has, in the view of Macquarie, reduced concerns with respect to margin pressure from disparate growth across divisions and any reversion back to industry growth rates.
What should help maintain earnings growth rates is an extension of CSL's share buyback program. Citi expects a current $900 million buyback will be completed within this financial year, while a further buyback of a similar magnitude is likely to be announced in FY13.
This supports Citi's view CSL remains a Buy at current levels, as on the broker's numbers CSL is not expensive. Others have come around to this view, as on the back of the interim result both BA-ML and Macquarie have upgraded CSL to Buy ratings from Hold previously.
For BA-ML there is growth potential for CSL from further M&A activity, while as earnings per share increase in part due to the buybacks there is scope for further multiple expansion. Macquarie also sees the group's organic growth outlook as attractive, especially as this growth continues to track higher than elsewhere in the industry.
Outside the database it has been a similar story, as Bell Potter has gone even further and lifted its rating on CSL to Buy from Reduce. Reasons for the Bell Potter upgrade are similar, the broker attracted to strong albumin demand, new products being brought to market and the associated growing importance being paid to R&D to maintain CSL's development pipeline.
Overall the FNArena database shows CSL is rated as Buy five times and Hold three times, with a consensus price target of $35.52. This is up from $34.08 prior to the result.
Shares in CSL today are stronger and as at 12.20pm the stock was up 37c at $32.09. This compares to a range over the past 12 months of $26.12 to $37.00 and implies upside of around 10% relative to the consensus price target in the FNArena database.
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