CSL is in a strong position as the leading supplier of plasma-derived products globally, including treatments for haemophilia, inherited immune disorders (IID) and other rare diseases. It has generated consistent growth through strategic acquisitions to build scale combined with organic growth from novel therapeutics and value-added products such as sub-cutaneously injected formulations of IV therapies. ROE was 47% in FY16 and annual shareholder returns have averaged 27.6% since listing in 1994.
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CSL |
Continued growth from plasma and vaccines
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Pharma & biotech |
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3 August 2017 |
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CSL is a client of Edison Investment Research Limited |
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CSL is in a strong position as the leading supplier of plasma-derived products globally, including treatments for haemophilia, inherited immune disorders (IID) and other rare diseases. It has generated consistent growth through strategic acquisitions to build scale combined with organic growth from novel therapeutics and value-added products such as sub-cutaneously injected formulations of IV therapies. ROE was 47% in FY16 and annual shareholder returns have averaged 27.6% since listing in 1994.
Plasma
Key business CSL Behring (FY16 sales US$5.3bn) is a global provider of plasma-derived therapies and recombinant analogues, and operates one of the largest and most efficient plasma collection networks in the world. In August CSL acquired an 80% stake in a Chinese plasma fractionator for US$352m cash, providing an opportunity to participate fully in the rapidly growing market for plasma products in China, where CSL is market leader but is restricted to importing albumin only.
Vaccines
In July 2015 CSL combined the loss-making influenza vaccines arm of Novartis with its existing vaccines business to form Seqirus, the second largest influenza vaccine provider globally, with FY16 sales of US$0.7bn. Seqirus is expected to report a loss in FY17 before improving to breakeven in FY18 due to progress of the turnaround strategy and the full-year impact of new quadrivalent (Flucelvax QIV, Afluria QIV) and adjuvanted (Fluad) flu vaccines. Improving yields and efficiency at the Holly Springs (US) cell-based manufacturing plant is a key turnaround goal.
Integration, efficiency and new products drive growth
CSL has a track record of successfully integrating acquisitions to drive efficiency and build scale. In addition to being an operationally efficient low-cost producer, a key strategy is to develop new and value-added products to maximise revenue from each litre of plasma processed; in addition to an extensive pipeline of new haemophilia and IID therapies, it has completed a successful Phase II trial of CSL112, a previously unused plasma component that aims to reduce early repeat heart attacks by stabilising arterial plaques, with a Phase III to commence in FY18.
Valuation: Track record justifies high multiple
Consensus estimates indicate that the market sees a growth in EPS in FY17 and FY18 after a fall in FY16 due to the acquisition of the loss-making flu business from Novartis. CSL currently trades at 33.4x 2017e P/E; the high multiple reflects the track record of consistent earnings growth and the strong profit growth expected in FY18.
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Consensus estimates
Source: CSL, Bloomberg. Note: CSL reports results in US$; share price is in A$. |
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Disclaimer
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Listed in April 2017 with a reorganized corporate structure, and led by a high-calibre operating team, Ten Entertainment Group (TEG) has developed a highly cash-generative business model that signals further growth prospects. By combining its operating formula with an integrated technology platform, TEG has set itself apart from competitors. With effective inward capital investment and its ‘Tenpinisation’ model, growth looks set to continue, and forecasts indicate a substantial increase in profit in FY17 and FY18.