CSL: Interim result 2019
Recommendation
It's no fun to get a dose of the flu, but a bad flu season can work wonders for CSL's shareholders. The company's Seqirus division - the second largest flu vaccine maker in the world - saw revenue rise 21% in the six months to December. The result was driven by the harsh flu season and a large increase in sales of CSL's 'quadrivalent' seasonal flu vaccine, which offers protection against four strains of influenza, rather than the usual three. The extra protective factor of the quadrivalent vaccine commands higher prices, which helped to improve Seqirus's operating margin.
Key Points
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Seqirus posts strongest half yet
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Rising market share in antibodies
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Albumin and Haemophilia sales disappoint
The division delivered an operating profit of US$304m for the six months to December, up 65%. The Northern Hemisphere flu season makes this the strongest half and the division is likely to be loss-making in the second half of the financial year - but it's still an impressive result given that just three years ago, at the time CSL bought the business, Seqirus made an operating loss of around $200m.
CSL's main division, CSL Behring, increased sales 8% to US$3.5bn, helped by a 12% rise in sales of antibody products - which help to prevent infections when a patient's immune system isn't working properly - and a 13% increase in specialty products. Sales of Privigen and Hizentra - two of CSL's best-selling antibody therapies - were particularly strong, rising 17% and 14% respectively. The overall market for antibodies is growing at 7-10%, which suggests that CSL increased its market share during the period.
Six months to 31 Dec | 2018 | 2017 | /(-) (%) |
---|---|---|---|
Revenue (US$m) | 4,505 | 4,147 | 9 |
EBIT (US$m) | 1,553 | 1,476 | 6 |
NPAT (US$m) | 1,161 | 1,086 | 7 |
EPS (US cents) | 2.56 | 2.40 | 7 |
Interim div 85 US cents, up 8%, unfranked, ex date 13 Mar |
Unfortunately, the strong antibody sales were partially offset by a 2% decline in haemophilia products and a 4% decline in sales of albumin.
The decline in albumin sales was noteworthy on two fronts. The first is that while revenue declined, volumes actually increased 3%. This implies a 7% decline in average selling prices. Management also said that the albumin business had been affected by temporary restrictions on imports into China. CSL is seeking approval from the Chinese Government to import albumin from its Illinois, USA, manufacturing facility. Management said that if this new license is approved, it expects sales to return to growth.
Overall, revenue rose 9% to $4.5bn, but an 11% cost increase meant that the net profit rose only 7% to $1.2bn. Removing the effect of currency fluctuations, the revenue increase would have been 11% and the profit increase 10%.
Management expects net profit of US$1,880m-1,950m for the 2019 financial year, up 10-14%. CSL has economies of scale and a clean balance sheet, a dominant market share and plentiful growth prospects. With a forward price-earnings ratio of around 31, we're sticking with HOLD.