CSL’s share price set to soar to $400 thanks to Vifor deal, Morgan Stanley says

A Swiss renal treatments company could elevate CSL to reclaim its spot as the biggest company on the ASX.

CSL CEO Paul Perreault oversaw the company’s $16.4bn takeover of Swiss renal treatments company Vifor Pharma. Picture: Aaron Francis/The Australian

CSL is on track to reclaim its crown as the ASX’s biggest company with its share price to soar to $400 by 2025, Morgan Stanley equities analysts say.

The company – originally the Commonwealth Serums Laboratories – briefly overtook Commonwealth Bank in 2020 to become the ASX’s biggest company after its shares rose above $300. But it has since fallen to third place after BHP shifted its London-listed shares to Australia and CBA regained ground.

Morgan Stanley, however, has identified three bull case scenarios that will lift the blood products group back on top. And they are all linked to its $16.4bn acquisition of Swiss renal treatments company Vifor Pharma, which is estimated to be 8 per cent earnings per share-accretive to CSL in the 2023 financial year.

In a 77-page note to investors, Morgan Stanley analysts Sean Laaman, Tina Vu and Sarita Kapila wrote: “given CSL‘s long track record of fundamentally outperforming peers, we believe the Vifor outlook could be very different in CSL management’s hands”.

If their estimate is accurate, CSL market capitalisation would soar from to $130.47bn to more than $362bn. This compares with BHP and CBA’s market values of $245.47bn and $179.8bn.

The Morgan Stanley analyst said the three key drivers of material EPS upside include – higher revenues through CSL sales channels for Vifor drugs Veltassa, Korsuva/Kapruvia and eventually Vadadusta; revenue boost from Vifor‘s anaemia treatment Injectafer through greater adoption of patient blood management; and franchise benefits from Vifor’s dialysis centre and partners Fresenius Medical and Fresenius Kabi.

“If we take the scenario that CSL should trade on a FY23 earnings (price/earnings ratio) … based on the 5 year average … then for CSL to trade at $400 per share, CSL would need to deliver an FY23 EPS (earnings per share) of $US8.53,” the Morgan Stanley analysts said.

“Looking at a pro forma basis on our base case estimates of CSL and Vifor, we estimate an FY23 EPS of $US5.98. If our bull case scenario does play out then this could add an additional $US1.01 to CSL+Vifor FY23 EPS, resulting in a share price of ~A$328 based on a P/E of 35.1x.

“Notably, when we start to look at outer years, we think this is when our bull case scenario starts to materially provide upside risk. On a pro forma basis, we estimate CSL and Vifor to deliver an FY25 EPS of $US8.25. Adding our bull case scenario FY25 EPS of $US2.84 to our base case FY25 EPS of $US8.25, we get a total EPS of $US11.10, which suggests that CSL could potentially trade at $519 per share.”

But the Morgan Stanley analysts conceded $519 a share was too bullish, citing the impact of Covid-19 on CSL’s earnings.

CSL last traded at $270.86 a share.