This was published 2 years ago
Shares take a hit, but is CSL still a good growth opportunity?
By Emma Koehn
Over the past 106 years, CSL has made everything from antivenom to COVID-19 vaccines and, since listing on the Australian Securities Exchange in 1994, it has also delivered stellar returns for investors.
The pharmaceuticals maker has seen its shares soar more than 5500 per cent since they began trading.
Locally produced vaccine vials coming off a Melbourne production at CSL’s Seqirus last year. Credit:
Many Australians have exposure to the business, even if they don’t own its shares directly, with many superannuation funds holding a significant amount of the company.
The pandemic served as a reminder of CSL’s one-of-a-kind infrastructure: It was the only company to produce coronavirus vaccines onshore. However, its shares are down 21 per cent since February 2020 and recently changed hands for $260.
Lockdowns have thrown up tough conditions for CSL because they reduced the number of people willing to donate blood plasma, a key ingredient in its flagship products. The company says it hasn’t changed its long-term growth strategy – but what are the risks and opportunities for new investors?
How it started: Founded in 1916 as Commonwealth Serum Laboratories, CSL started life as a government body focused on making vaccines. It was privatised in 1994 and launched on the ASX at just $2.30 a share.
How it’s going: CSL’s market cap of $125.2 billion makes it the largest healthcare business in the country and one of the most valuable companies listed on the ASX.
Industry: Biotechnology, pharmaceuticals.
Main products: Specialist medicines made from blood plasma, influenza vaccines.
Key figures: Chief executive Paul Perreault, chair Brian McNamee.
The bull case: Chief executive Paul Perreault has said that despite challenging conditions, CSL’s growth plans remain on track.
Stock watchers are optimistic that the troubles with collecting plasma are over. RBC Capital Markets analyst Craig Wong-Pan says that analysis of foot traffic data into CSL’s collection centres in the United States showed a 39 per cent year-on-year increase in May.
“We consider this to be positive for CSL as it suggests the company’s plasma collection volumes have continued increasing during the second half of 2022,” he said in a research note to clients this week.
Volunteers across the United States can go into CSL centres and receive about $US60 to donate plasma, which is collected via a specialised machine.
The company is getting ready to roll out new collection technology which will cut down the time it takes to complete a donation.
Wilson Asset Management portfolio manager John Ayoub says this new platform is a big plus for efficiency. “It should put a larger barrier and be a competitive advantage over competitors,” he said.
Last December, CSL surprised the market with a new growth strategy: a $16.4 billion acquisition of Swiss pharmaceuticals firm Vifor.
Vifor makes treatments for iron deficiency and kidney disease, two areas that have not been CSL’s focus.
Analysts were initially split on the purchase, but now many view the pipeline of new therapies that Vifor is working on will be a significant driver of future CSL earnings.
Macquarie has an “outperform” rating on CSL stock and a target price of $312.
“We see the earnings growth profile for CSL as attractive to FY24, supported by an assumed recovery in plasma collections ... and earnings contributions from Vifor,” its analyst team said last week.
The bear case: Major risks, as analysts see them, come from a possibility that growth opportunities such as the Vifor acquisition don’t pay off.
CSL has raised an enormous amount of cash to complete the deal, including a $6.3 billion institutional placement, a $750 million share purchase plan and $US4 billion in debt markets.
In mid-May, CSL shares fell when the company told the market that it would not complete the acquisition by mid-year, as it had been expecting, but instead needed a few more months for regulatory approvals.
Morgan Stanley analysts noted last month that the change in timeline may mean investors have to wait longer to know how much Vifor would add to future CSL earnings.
“Future CSL disclosures on the Vifor opportunity (and upside to the acquired business provided by CSL management’s control) may now move to post the report of FY22 earnings and first time FY23 guidance may be now without a Vifor contribution,” Sean Laaman wrote in a research note to clients.
Lockdowns are now a distant memory, but CSL’s plasma collection business may still face challenges.
Earlier this year, the company confirmed it had embarked on a hiring spree of staff amid a shortage of workers in centres. CSL and its competitors have had to offer higher donation fees to get individuals through the door.
“Inflation could put pressure on donor fees,” Ayoub said.
The long and short of it runs each Wednesday
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.