CSL’s latest acquisition renews the company’s ‘buy’ status

CSL’s $16.4bn acquisition of Swiss biotech Vifor Pharma gets a thumbs up from a faithful shareholder base.

CSL – the biggest stock on the ASX which is not a bank or a miner – just got a whole lot bigger and it looks like the market loves it.

The healthcare group is among a handful of blue chips that can claim to be in positive territory over the year to date, but it is this week’s takeover of the Vifor group which has revived CSL’s position as a consensus “buy”.

It’s currently trading near $297 and the broker consensus price target sits at $322.32.

Until now, CSL has been predominantly associated with the production of medical treatments involving the use of blood plasma, while Swiss-based Vifor deals with iron deficiency treatments mostly in relation to renal (kidney) conditions.

Tasmania’s SES acting director Leon Smith donates plasma. Picture: Linda Higginson

Wilsons Advisory senior analyst Shane Storey says CSL’s acquisition of Vifor gives the pharmaceutical giant room to expand in the industry while reaping the rewards of an

already established company.

“Vifor addresses really different parts of the healthcare system compared to those CSL deal with today, so when we looked at this transaction we were seeing there was nice operating business in an adjacent clinical area that CSL could buy without diluting their margin,” Mr Storey said.

“This acquisition could de-risk CSL’s entry into some other clinical areas that could have some really interesting assets.”

After a tough couple of years for the company due to a slump in the number of plasma donations coming out of the US because of the Covid-19 pandemic, CSL is looking like it is back on track.

Worldwide demand for plasma products continues to push upwards: At the same time the fees paid to plasma donors have fallen by an estimated 15 per cent as boosted payment incentives to get donors during the pandemic are no longer needed.

CSL chief executive Paul Perrault.

Citi analyst John Deakin-Bell says investors can expect the donation of plasma and the treatments developed from those collections to power ahead.

“Demand is very strong, and prices of plasma products are up mid-single digit, showcasing the pricing power of plasma companies,” he said.

“Lower donor fees, improved fixed costs absorption from higher collection volumes, and higher average selling price will lead to margin improvement going forward.”

Mr Deakin-Bell said investors should not be worried about the fall in CSL’s earnings for the recent financial year as the plasma industry had already shown signs of a strong recovery.

Along with Citi and Wilsons the stock is now getting support from Morgan Stanley, Morgans and Ord Minnett. Price targets range from $312 from Morgan Stanley and Macquarie to $345 from Citi.

At Wilsons, Storey said CSL was positioned well in the market when it came to key rivals in the plasma industry such as Grifols Ltd and Takeda Ltd, especially as the industry looks to treatments for long-Covid.

“CSL is the best placed to handle additional costs and offset them in other ways; those competitors probably don’t have that protection,” he said.

“Over the next three years CSL will be in a good spot to take market share, especially from the Spanish company, Grifols. These competitors aren’t as well set up from a profitability perspective.”

CSL’s factory at Broadmeadows in Victoria. Picture: Tim Carrafa

A report from Morgans says “CSL’s December-half results outpaced Morgans’ forecasts but met management guidance, thanks to a strong performance from the Seqirus division which benefited from pandemic-inspired demand for influenza vaccines”.

FY22 guidance is weaker and the broker has eased earnings forecasts roughly -2%.

But Morgans believes the Covid tide is turning for plasma collections and issues a call to action on CSL, saying now is the time to enter.

Citi’s Deakin-Bell said: “What happened was the plasma donors couldn’t donate, either they were scared to go to a donation centre, or they were having to stay at home in lockdown.

“It was problem for the industry, not just CSL. They just couldn’t get enough plasma, impacting their production, which was why their earnings have fallen in the 2022 financial year.

“CSL will report in two weeks’ time (August 17), but we have had reports from their competitors last week and they have definitely recovered, and they are forecasting a 20 per cent growth in plasma donations in this calendar year.

“We expect CSL will do the same.”