CSL: Monster numbers, questionable outlook

Bella Kidman

Livewire Markets

Typically, listed companies are striving for high single-digit net profit growth. A company reporting 9% net profit growth for the half is one you want to own. So many investors jumped to buy Australian market darling, CSL Limited (ASX: CSL) as it released its half-year 2021 results, announcing a whopping 45% profit growth for the period. A bloody brilliant performance, some would say. 

But is that big number convincing enough? Not according to Stuart Welch of Alphinity Investment Management. While this profit figure is encouraging investors to dive into their pockets and splurge on Australia's third-largest company, he believes management's unchanged guidance raises a few questions. 

CSL key result metrics:

  • 44% growth in NPAT (net profit after tax) 
  • 16.9% growth in revenue 
  • An increased dividend of $1.04 USD, up 9%

Source: CSL Investor Presentation 

In this Q&A, I discuss the key takeaways from this morning's result, the guidance issued by management, and why investors need to read between the lines when it comes to CSL's monster profit announcement. 

What are the key points of CSL's recent result? 

The key point of the result this morning, was that it was a fairly substantial beat on expectations. Particularly on the Sequirus side which was where the real strength came through. Revenue, relative to market expectations was about a 15% beat. There was great operating leverage through that part of the business - certainly more than the market expected. We also saw a 60% beat on expectation on the EBIT line, again through the Sequirus business. The Sequirus business is primarily the flu vaccination business and there has been insatiable demand for that product, particularly because people have been trying to avoid a 'twindemic'. 

On the Bhering side, there's very well known issues with plasma collections, and that's causing issues with IG volumes. Likewise, the product lines have been affected due to less hospital activity. On that side of the business, what was most significant was the extraordinarily strong cost control. They managed to keep costs down pretty materially, which assisted them in beating market expectations. 

Given CSL'S strong report, why is the share price only up 2.5% today? Have investors missed something?

There are still a couple of things that the market is still concerned about. 

Collections continue to be an issue, on the Bhering side. Plasma collections are still down in the month of December 2020, 20% relative to the prior corresponding period. So although there's been an improvement when considering the COVID related impacts, it's still down. It has been trending in the right direction and the company provided some positive remarks about the recovery they're seeing, but the reality is, it hasn't returned to pre-covid levels. 

The key concern for people is that, despite the strength of the first half result, CSL has kept the full year guidance. That means that having delivered 80% of the guidance in the first half, implies a pretty week second half. This asks the question is the guidance conservative or will lower collections cause some weakness until such time as volumes recover. It could be a bit of both, as is usually the case. 

Were there any surprises? 

The two key surprises were the strength of the cost control on the Bhering side and both revenue and margin beat on the Sequirus side. These are the two standout points of the result. 

Additionally, it was a very strong result but there were also a few 'one-offs' that the company had to absorb during the period. For example, they had a manufacturing issue in one of their high margin products that went backwards during the period. Likewise, they also had some royalty streams that went backwards - high margin also - and they also took a $50m write down. These impacts were only partially offset by some COVID related revenue. So, the strength of the result, as strong as it was, also incorporated a bunch of negative one-off impacts. So the underlying result was probably a little better than the headline numbers would imply. The business has really managed things well during the period, so that just speaks to their management team. 

Given we've seen two major tailwinds for CSL in the last few days, is that likely to drive the share price higher? 

There's some reasonably positive indications for CSL that it will continue to perform. The collections issue is a major issue, but there is some light at the end of the tunnel in terms of a vaccine rollout which should make people more comfortable in attending collection centres. This no doubt, is likely to improve at some point. 

There's an argument to be made that the numbers we've seen from Sequirus indicate strong growth for this part of the business. Although COVID has somewhat impacted this, the growth is likely to stick, post COVID. 

Want more earnings season Q&As like this?

Hit like so we know that you want more of this type of content.

Throughout February, my colleagues Glenn Freeman, James Marlay, Mia Kwok, Nicholas Plessas, Patrick Poke and Angus Kennedy will also publish similar Q&As on Livewire readers' most-tipped big caps and small caps. Hit FOLLOW on our profiles to be notified when these wires are published. 

Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

1 topic

1 stock mentioned

Bella Kidman
Bella Kidman
Content Editor
Livewire Markets

Bella is a Content Editor at Livewire Markets.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Sign In or Join Free to comment