ASX:CSL
CSL Ltd
Investment Summary
In their reports, the fund managers believe that CSL Ltd (CSL) showcases a robust position within the industry, notably through its expansion of plasma fractionation and purification facilities, enhancing capacity to support topline growth. In their opinion, CSL’s focus on operational efficiencies, including automation and quality control, is likely to support margin expansion. While the recent failure of drug candidate CSL112 and downgraded growth expectations for Vifor present short-term challenges, the managers assert that these issues do not undermine the overall investment thesis. The fund managers anticipate long-term growth driven by the recovery of plasma earnings and an attractive late-stage R&D pipeline. Importantly, they express confidence that margins can exceed pre-COVID levels within the guided timeframe, aided by operational efficiencies and new specialty products. The managers perceive a significant multi-year improvement in Behring’s economics and validate that the current market underappreciates this potential upside.
Commentary From The Managers
Cooper Investors
31 Mar 2024
$285.67
- CSL (CSL) underperformed in the quarter due to the failure of drug candidate CSL112 in phase 3 trials.
- CSL112 did not meet its primary efficacy endpoint of reducing Major Adverse Cardiovascular Events in heart attack survivors.
- Disappointment surrounding CSL112 trial results was magnified by earlier futility milestones.
- Sales growth expectations for Vifor, acquired for US$11.7bn, have been downgraded amid various headwinds.
- Vifor is facing earlier than anticipated generic competition and US insurer step edits affecting patient access to treatments.
- New products from Vifor, including Korsuva, have not met expectations.
- Management remains optimistic about Vifor's medium-term prospects, focusing on iron franchise expansion and new geography opportunities.
- Despite challenges, these issues do not undermine Cooper Investors' CSL investment thesis.
- CSL112 was not included in base valuation due to trial risks, but its failure represents meaningful value latency.
- Vifor accounts for approximately 13% of earnings, and expectations were already conservative.
- Upside potential from Behring (plasma) and, to a lesser extent, Sequiris (vaccines) is anticipated to drive long-term growth.
- Market may not fully recognize Behring’s multi-year economic improvements from operational efficiencies.
- Behring margins are expected to return to and exceed pre-Covid levels.
- No value is currently reflected in share price for opportunities surrounding self-amplifying mRNA vaccines.
- CSL and partner Arcturus to launch the world's first sa-mRNA vaccine in Japan later this year.
Cooper Investors
30 June 2023
$277.38
- Fund holding: CSL (CSL) remains a key position for Cooper Investors.
- Market update: Recent guidance for FY23 constant currency earnings is largely in-line with previous projections.
- FX impacts: Unfavourable FX effects have increased compared to earlier outlooks.
- FY24 guidance: New guidance is ~12% below market estimates, leading to some underperformance.
- Market sentiment: Previous enthusiasm regarding the recovery in Behring margins has been reassessed.
- Operational challenges: Higher donor fees and lower volumes during COVID have negatively impacted operating leverage.
- Donor fees outlook: Management does not expect donor fees to return to pre-COVID levels.
- Recovery timeline: Margin recovery is now expected to take 3–5 years (FY26–28).
- No structural concerns: The update indicates no structural issues within the plasma business.
- Improving collections: Plasma collections continue to improve and demand remains robust.
- Operational efficiencies: CSL is pursuing operational efficiencies that should enhance medium to long-term margins.
- Market outlook: Some operational efficiencies may not yet be reflected in the company’s outlook.
- Margin expectations: Recovery of margins can happen within the guided timeframe, potentially exceeding pre-COVID levels if specialty products succeed.
- R&D portfolio: An attractive late-stage R&D portfolio provides additional confidence in the investment thesis.
Cooper Investors
31 Mar 2023
$288.30
- CSL remains a step ahead of peers: Significant expansion in plasma fractionation and purification facilities over the past 2-3 years enhances capacity for topline growth.
- Focus on operational efficiencies: Automation, quality control, and yield gains are prioritized, which supports margin expansion and higher returns.
- Advanced preparations for CSL112: The therapy is pending successful Phase 3 trials, with results expected early CY24, indicating strong confidence from CSL.
- CSL Vifor's manufacturing process offers protection against patent expiry: While competitive moats may not be as robust, complexity in the manufacturing process limits generic competition.
- Investment for growth: Construction of a "multicube" facility aims to increase reactor capacity by 50%.
- Longer investment time horizon: Reflects industry factors and the strength of CSL's strategy and management.
- Positive operating trends: Plasma earnings are recovering, and Vifor sales benefit from geographic and indication expansion.
- Key value latencies: Operational efficiencies in the plasma business are expected to boost margins above historical levels, alongside a robust late-stage R&D pipeline.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.