CSL Ltd (CSL) reported a first-half FY20 normalised net profit of US$1.248bn, up 7.5% on the same period last year and broadly in line with Ord Minnett’s forecast. A dividend of US95cps was declared, below our US99cps estimate.
Revenue matched our estimates, while operating profit in both divisions came in 3–5% short due largely higher general and administration cost growth, with a 10% increase in staffing expenses, as well as facilities expansion and new technology purchases. This was offset by lower interest charges, due partly to currency and much lower amortisation, which fell sharply on a sequential basis due to currency and the timing of software amortisation.
With immunoglobulin (Ig) sales volumes rising 17%, we estimate CSL grew sales at almost twice the market rate, as it again took advantage of “competitor supply challenges”. This growth will likely moderate, although the group’s investment in plasma collection should ensure it can continue to extend its lead in the current buoyant market.
Management guided to an FY20 net profit (based on constant-currency) in a range of US$2,110–2,170m, implying 10–13% growth, excluding the impact from transitioning to a new Good Supply Practice Licence (GSP) direct distributor model in China (allowing the company to own and sell products in the local China market). After adjusting for the impact of this transition, we estimate the guidance implies underlying profit growth of about 20%.
We forecast an FY20 net profit of US$2,136m, which factors in an expected US$70m currency headwind, higher than the US$60m guided to at the AGM. This equates to a net profit of US$2,206m on a constant-currency basis, about 2% above the top end of management’s guidance range.
We see few near-term challenges for CSL and expect the double-digit underlying earnings growth to continue into FY21. We are wary, however, that the current valuation makes little allowance for the potential challenges on the horizon from new therapies, which could slow Ig demand, as well as reforms to US reimbursement. We maintain our Hold recommendation on CSL, while we raise our target price to $305.00 from $285.00.