##{"id":60462,"date":"2012-08-23T11:51:59","date_gmt":"2012-08-23T01:51:59","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/08\/23\/csl-true-blood-but-fair-price\/"},"modified":"2012-08-23T11:51:59","modified_gmt":"2012-08-23T01:51:59","slug":"csl-true-blood-but-fair-price","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/08\/23\/csl-true-blood-but-fair-price\/","title":{"rendered":"CSL: True Blood But Fair Price?"},"content":{"rendered":"

\n\t – CSL<\/span> delivers solid profit result
\n\t – Further increase in earnings expected in FY13<\/span>
\n\t – Stock regarded as a core defensive holding
\n\t – Valuation the issue for some brokers<\/strong><\/p>\n

\n\t
\n\tBy Chris Shaw<\/p>\n

\n\tFull year earnings for biopharmaceutical specialist CSL<\/span> ((CSL<\/span>)) of $982.6 million were broadly as the market had expected, the headline number helped by a lower tax rate during the period. The result demonstrated demand for CSL's<\/span> products remains strong, particularly for immunoglobulins<\/span> and specialty products such as Riastap<\/span> and Berinert<\/span>.<\/p>\n

\n\tAs Bell Potter notes, immunoglobulin sales for CSL<\/span> grew by 15% in FY12<\/span>, while strong Asian demand meant albumin sales increased by a similar percentage. The broker doesn't expect any slowing in demand growth for either product in FY13<\/span>.<\/p>\n

\n\tEven better was the 18% increase in sale of specialty products, which Bell Potter saw as a result of various product launches in the period and higher awareness of the various uses of CSL's<\/span> products. <\/p>\n

\n\tFrom such a base, Deutsche Bank expects another year of double digit profit growth for CSL<\/span> in FY13<\/span>. The market agrees, as consensus earnings per share (EPS) forecasts for CSL<\/span> according to the FNArena<\/span> database stand at 226c<\/span> this year and 257.8c in FY14<\/span>, which is up from the 189c<\/span> achieved in FY12<\/span>.<\/p>\n

\n\tEarnings per share should receive a boost from management's intention to follow the current $900 million share buyback with another buyback of the same size. Longer-term JP Morgan suggests further capital management initiatives are likely given CSL's<\/span> cash generating ability and the improvement in working capital achieved during FY12<\/span>.<\/p>\n

\n\tRevised earnings forecasts across the market have seen price targets for CSL<\/span> push higher. The consensus price target according to the FNArena<\/span> database now stands at $43.15, which is up from around $40.50 prior to the full year profit result. <\/p>\n

\n\tTargets in the database range from RBS<\/span> Australia at $38.23 to BA Merrill Lynch at $45.40, while Bell Potter's price target for CSL<\/span> stands at $49.00. This is up from $36.00 prior to the profit result.<\/p>\n

\n\tFor some in the market, risk to earnings forecasts appears to be to the upside. As Bell Potter points out, CSL's<\/span> core IVIG<\/span> product could enjoy a significant boost in demand if it proves to be effective in the treatment of Alzheimer's Disease. <\/p>\n

\n\tCompetitor Baxter is currently preparing for a Phase III trial of IVIG<\/span> in Alzheimer's and Bell Potter suggests success in this trial would generate benefits for all IVIG<\/span> suppliers longer-term given the potential size of the market. Chances of success in the Phase II trial are seen as good.<\/p>\n

\n\tOthers are less positive, as BA Merrill Lynch suggests while FY13<\/span> should deliver peak earnings, by FY14<\/span> increased competition will add to earnings headwinds<\/span>. This should be at least partially offset by new product launches in the view of BA-ML, but limits potential upside according to Credit Suisse and UBS.<\/p>\n

\n\tBroker ratings for CSL<\/span> continue to be weighted towards Neutral, the database showing five Hold ratings and three Buy recommendations. Bell Potter is not in the database but rates CSL<\/span> as a Buy.<\/p>\n

\n\tAmong those with positive ratings, BA-ML remains attracted to ongoing consistent earnings growth from CSL<\/span>, while JP Morgan sees the company as a classic defensive story that will continue to attract interest from investors.<\/p>\n

\n\tValuation is the main issue for those rating CSL<\/span> as a Hold, Credit Suisse noting at current levels CSL<\/span> is trading on a more than 50% premium to the ASX200<\/span> ex-financials index based on its revised earnings estimates.<\/p>\n

\n\tDeutsche points out CSL<\/span> is also trading at a large premium to international peers at current levels, this despite the likelihood of increased competition from late FY13<\/span> as Baxter rebuilds its output. Citi's<\/span> view is CSL<\/span> deserves to trade at a premium to peers given solid earnings growth but even allowing for this the stock is fair value around current levels.<\/p>\n

\n\tShares in CSL<\/span> today are higher in a stronger overall market and as at 11.40am the stock was up 33c<\/span> at $42.33. Over the past year CSL<\/span> has traded in a range of $26.12 to $43.20, with the current share price implying upside of around 2% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"