CSL Disappoints But Brokers Retain The Faith

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CSL’s trading and guidance fell -12% short of consensus forecasts but most brokers hold the faith.

-Foreign exchange movements take a toll
-Behring GM post-covid recovery postponed
-Inflation bogs things down
-Brokers retain the faith

By Sarah Mills

CSL ((CSL)) has advised investors to expects a -US$240m to -US$250m foreign exchange impost – up from the -US$175m forecast at the company’s half-year result – due mainly to a strengthening euro. 

British pound, Swiss franc, Chinese renminbi and Aussie rates against the US dollar rates were also unfavourable, a situation compounded by strong US inflation, and timing mismatches.

The company’s trading update, issued after the company completed its budget, cut net profit after tax and amortisation guidance to -12% below consensus forecasts.

CSL forecast forecast would grow between 13% and 18% to $4.3bn and $4.4bn, compared with consensus estimates of $5.2bn.

Apart from the FX blow, the company postponed expectations of a recovery in its Behring business gross margin by up to two years (FY26-FY28, compared with FY26 previously).

Management also pointed to strong US inflation and labour costs, noting donor fees had risen and were unlikely to return to pre-pandemic levels after peaking nine months ago. The company expects costs per litre will continue to improve.

The rollout of plasma-collections facilities was also slower than forecast.

The share price fell about -6.9% on Wednesday in response to trade and continued to slide in early trade on Thursday.

Overall, the market appears to observe the cuts as a mere hiccup in the company’s long-term growth path.

Brokers Retain The Faith

The average target price in FNArena’s broker coverage universe fell -2.4% to $331.16 from $339.20 in response to the news. But brokers were unanimously supportive of the company, observing that forex impacts can easily march in the opposite direction.

Instead, they focus on the core issues of inflation and plasma collections, where cuts to Behring's margin forecasts emerged as the main issue.

UBS observes a slower launch for gene therapy Hemgenix; and takes a more cautious position on the company’s chances of increasing its Ferinject (IV iron) in Europe given CSL’s patent expiry in late 2023, and the likely entrance of generics.

While UBS is slightly more cautious on the long-term view, it says the overall thesis remains intact, expecting Behring’s gross margins to recover to pre-covid levels and above; supportive pricing, mix and volume trends for Seqirus; and the possible CSL112 commercialisation in early 2024.

Despite the slow Hemegenix launch, UBS (Buy) expects this will prove a "blockbuster" product for CSL, adding 4% to the top line by 2030.

Morgans (Add) also takes the opportunity to reset its expectations but suggests now could prove a good entry point for investors. The broker notes management says the company is in good shape and demand remains solid, and that its research and development pipeline has “never been better”.

Morgans also considers the loss of the Ferinject patent to be well broadcast, and says it has already been accounted for in guidance.

Ord Minnett (Hold) asserts the company’s long-term recovery is intact and already had a Hold rating on the company.

In response to the announcement, the broker trims its immunoglobulins five-year compound annual growth rate to 11% from 12%, largely to reflect softer Asian currencies relative to the US dollar. But it says this is offset by the stronger USD relatively to the AUD, and the time value of money.

The broker now predicts a full Behring recovery by 2027. 

Morgan Stanley (Overweight) says guidance suggests downside risk of -5% on its FY23 forecasts, all things equal, and -9% to its FY24 forecasts. The broker estimates a 6-12 month delay in achieving previous guidance and suspects the company’s guidance could prove conservative over the long term.

Morgan Stanley does expect Ferinject could face more pressure than expected, observing multiple country registrations by Sandor. On the other hand, the broker spies potential upside from US approval of Injectafer’s use in heart failure.

Citi (Buy) says the trading update was simply aimed at managing market expectations around the post-covid margin recovery in Behring, to assume a gradual recovery rather than a V-shaped recovery. The broker also observes the company’s optimism around upcoming product launches such as Garadacimab. Citi now shifts its view to the results of the argenx CIDP trial in July.

Post the profit warning, five FNArena database brokers retain Buy or equivalent ratings with one Hold, and no ratings changes.

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