Behring Margin Outlook Still Main Game For CSL

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A weak vaccine result dragged on CSL’s H1 result but analysts focus on an improving plasma product margin and solid growth forecasts in maintaining positive views.

-Seqirus weakness weighs on CSL’s H1 result
-Improvement in Behring gross margin offsets
-Vifor performs better than expected
-New products offer growth potential

By Greg Peel

Leading global plasma products and vaccine manufacturer CSL Ltd ((CSL)) posted first-half FY25 earnings below market forecasts, driven by a sharp fall in revenue and earnings from its Seqirus vaccine division, while its main Behring plasma business and Vifor iron deficiency and nephrology division turned in what analysts describe as more solid performances.

Despite the soft first half, CSL maintained full-year guidance for growth of 10-13% in net profit on a constant-currency basis. Currency is nonetheless a headwind due to the rising US dollar.

Ultimately, notes Goldman Sachs, CSL Behring (68% of forecast group FY25 gross profit) remains the key earnings driver for the group and the result reinforced the earnings drivers for this segment are intact, notably: strong immunoglobulin (IG) growth of 15% (constant currency), indicating market share gains with reference to management’s 6-8% market growth guidance; and Behring’s gross margin recovering towards pre-covid levels.

Seqirus

The decline in the US flu vaccination rate and increased competition led to a disappointing Seqirus result, with revenue -10% below consensus expectations and gross margin -400bps below. Management suggested the second half will benefit from H5 bird flu preparedness payments but that won’t be enough to compensate for the weak first half.

Citi assumes bird flu preparedness will be a one-off.

We note that while bird flu has ravaged US chicken flocks and crippled the egg industry, and has now passed on to dairy cattle, there have been negligible incidences of human contagion. Scientists see human contagion as low risk at this stage. (Note from the Editor: Meanwhile, news reports state influenza cases continue to mount in the US with the virus reaching activity levels not seen in the country for the last 15 years, according to the Centers for Disease Control and Prevention, CDC).

Multiple pandemic bird flu tenders have been won, in the US, EU and Middle East, Morgans notes, with the revenue to be recognised in the second half and negotiations ongoing across other geographies.

Whilst the ‘miss’ for Seqirus was disappointing, Goldman Sachs notes this segment is navigating challenging market conditions, reflected by peers Sanofi and GSK reporting revenue declines of -6% to -15% across the corresponding half. With market share gains unlikely to feature as a lever for growth across the near term, Goldman reduces its FY26/27 Seqirus revenue forecasts by -12%.

Vifor

The Vifor division outperformed Ord Minnett’s expectations, with sales growth of 6% versus expectation of a flat outcome, driven by robust performances from the non-dialysis segment of the nephrology business and the iron deficiency segment.

As per the latest result, Vifor is performing ahead of consensus expectations, partially compensating for Seqirus weakness. Citi expects Vifor’s revenue and margin to remain choppy for some time given the iron loss of exclusivity in the US in July 2026 and ongoing generics competition in Europe.

Vifor was a highlight, Jarden suggests, delivering 6% growth in iron despite generic competition plus an improvement in margin which the analysts expect is from further synergies/cost out since the takeover.

Behring

Behring’s gross margin remains the key focus for CSL. It came in at a better than expected 51.7% in the half, driven by plasma collection/manufacturing efficiencies and reduced plasma cost per litre. CSL will “continue to focus on improving” gross margin in the second half, and Macquarie’s forecasts assume 180bps improvement year on year.

Behring’s gross margin underpins Jarden’s expectations of 13.2% compound annual growth in profit over the next four years (previously 14.5%) as it returns to pre-covid margins of 57%. However, the better than expected margin in the first half, up 170bps, was disappointingly described as unsustainable into the second, with FY25 margins fading back to previous guidance of an improvement of “100bps plus a bit”.

At the same time, management flattened the margin improvement trajectory, pushing out the more material steepening of this curve to FY27 (from FY26). Importantly for Jarden, CSL did not back away from pre-covid margins but delays with the Rika platform, slower than anticipated new product launches, and the loss of a material Kcentra contract all contributed to a further timing delay.

CSL maintained its view that Behring gross margins will keep widening, with a return to pre-covid levels around 57% expected by FY27-28 from circa 51% currently.

Behring showed authentic progress in reclaiming its base fractionation margin, Wilsons notes, which protected results from a flop in Kcentra. Pleasingly, Hemgenix had a breakout period. Wilsons assesses a unique niche for Hemgenix alongside standard of care Idelvion. This and the arrival of Andembry (garadacimab) are key factors in gross margin expanding another 390bps by FY27.

Product Launches

CSL’s first half SG&A (selling, general, and administrative expenses) spend was 5% ahead of consensus largely driven by the step up in marketing costs for the upcoming launches of Garadacimab across key markets and Fluad in Germany. Goldman Sachs views this investment as prudent, particularly in light of the ability for CSL to grow its 26% market share in the US$3bn hereditary angioedema market.

Goldman points out capex reduced by -20% in the first half with management noting its expansion in fractionation capacity across the last five years as a key enabler in delivering strong IG growth.

The biggest catalyst for CSL, in Jarden’s view, is the potential for the highly anticipated manufacturing change (Horizon 2) that is expected to deliver a proprietary step-change in IG yield maximisation. This broker has expectations this change could drive the Behring gross margin convincingly above 60% and represent one of the biggest value drivers for the business in recent times.

At CSL’s R&D day, management flagged a data release in mid-2025 which has the potential to significantly de-risk the US FDA approval of this manufacturing process. The FDA is interested in whether the data can demonstrate IG stability as well as whether the new manufacturing process can deliver the same product characteristics at scale.

Buys All Round, Almost

Following what the market decided was a disappointing result, the consensus target among the six brokers monitored daily by FNArena covering CSL has slipped only to $331.36 from $332.13 despite some trimming of earnings forecasts. Targets range from $310 (Ord Minnett/UBS) to $360.30 (Macquarie).

Each of the six brokers retains a Buy or equivalent rating.

While taking on more more conservative Behring gross margin assumptions, Macquarie suggests key contributors to growth remain intact (Horizon 1/2, Rika, garadacimab), and continues to see medium-to longer-term earnings per share growth as attractive, with the current valuation undemanding.

Citi believes CSL offers good value at a 23x FY26 PE, compared to a 29x ten-year average, for a forecast 11% compound annual earnings per share growth rate over FY24-27.

While the declining US flu market has caused headwinds for Seqirus, Behring continues its strong growth outlook and positive margin recovery, which Bell Potter expects will continue to drive double digit earnings growth for the group over the mid-term.

UBS makes small updates to Behring sales estimates, cuts mid-term Seqirus estimates by mid-to-high single digits, and upgrades Vifor estimates mid-single digits. Sales cuts in vaccines mean lower profit margins as these businesses see scalable profitability, UBS notes. Vifor margins rise mid-term, as newer products play a part, but not enough to offset revised vaccine forecasts.

UBS’ Buy rating is a valuation call.

Similarly, Ord Minnett maintains a Buy recommendation on CSL on an attractive valuation, given the broker still forecasts annual earnings per share growth of 9-13% over the forecast horizon despite post-result downgrades.

While Behring continues to do the heavy lifting, ongoing cost right-sizing and unmet demand across all divisions gives Morgans confidence in a double-digit earnings growth trajectory over the medium term.

Among brokers also monitored by FNArena, Goldman Sachs’ Buy recommendation for CSL, and a -2.2% lower target at $318.40, is driven by: strong growth in the IG market despite the entry of new drugs; market share gains in the IG market, haemophilia, hereditary angioedema and influenza vaccines; and gross margin accretion driven by operational improvements to its cost base.

Goldman believes CSL’s valuation multiple de-rate is onerous considering the growth outlook, particularly for IG therapies.

Jarden maintains an Overweight recommendation as while patience is required for evidence of margin expansion, given the lengthy (9-12 month) manufacturing process, current pricing should offer investors impressive returns with further upside under Horizon 2 initiatives.

Jarden has cut its target to $314.37 from $329.62.

Not quite playing to script is Wilsons.

The relentless discount working its way into the CSL valuation over the last 6-12 months is now cutting deeper than it should, Wilsons suggests, if the only two “issues” with the stock are short-termism about Vifor’s outlook and the weight of expectation hanging around the Behring gross margin.

Yet, this broker feels as though it’s “missed nothing” sitting at Market Weight for twelve months, and remains unmoved on the stock. CSL’s relative expensiveness versus global peers (43% premium) could continue to be a challenge for the share price, according to the broker, given how thoroughly over-owned the stock is, domestically.

Wilsons has cut its target by -14% to $250.

RBC Capital is equally less enthused about the short-term outlook, arguing “CSL will need to pull back its sales & marketing expenses to achieve its FY25 NPATA guidance, which we consider to be a low quality earnings driver”. This broker’s rating remains Sector Perform while its price target has been cut to $279 from $286.

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