CSL (CSL): eported their first half 2023 profit results, which confirmed a range of our investment theses for owning the company and were very good. This result was the first to include the impact of Vifor, the third largest acquisition in Australian corporate history in December (#1 Wesfarmers takeover Coles and #2 BHP takeover Petrohawk).
- Record Profits: up +10% to US$1.95 billion, with the company back on track after reporting its first profit decline in decades last August. Overall a consistent result from CSL’s main divisions, immunotherapies, flu vaccines and now Vifor. This result was our first look at Vifor which delivered sales of US$876 million and US$400M of profits, a high-profit margin and a high-growth business with an interesting suite of mainly renal (kidney) drugs in the pipeline.
- Dividends up +9% interim divvy A$1.55. payout remains low (28%) as CSL are expensing a current heavy R&D spend through the P&L and not the Balance Sheet, the cleaner option.
- Weaker US Economy delivers: As CSL buys blood plasma from US customers to create its biotherapies, the combination of lockdowns and stimulus payments in 2020/21 impacted the volumes of drugs the company could sell in 2022. Over the half the company saw a strong increase in plasma collected +36%, with levels now 10% above pre-pandemic. The increased stock of plasma in the pipeline will deliver higher earnings in 2023 and 2024.
- R&D: The market was looking for some more detail on CSL112 – CSL’s new therapy, it hopes, will prevent secondary heart attacks by attacking the build-up of cholesterol as fatty deposits on the artery walls, which blocks the blood supply to the heart and thus prevent secondary heart attacks. On the call, management revealed that testing for USFDA Phase III is close to being completed, and 2024 will see the results of the study. CSL112 is a potential game-changer for heart attack patients; about 10% have a second cardiovascular event within 90 days of their first attack, and many are fatal. CSL estimates that there are around 1.2 million heart attack discharges annually across the US, France, Germany, Italy, Spain and the UK, meaning there is a potential pool of 200,000 to 270,000 patients annually for CSL112 in those markets alone.
- Guidance: management upgraded guidance of FY23 profit from between US$2.4 billion and US$2.5 billion to US$2.7-US$2.8 billion, which was understandably well received. This equates to profit growth of +13% to +18% on FY22
Arena REIT is held in several of the HNW portfolios and is a a world leader in manufacturing medicines from human blood and flu vaccines and, along with Sonic Health, are the Portfolio’s core healthcare positions. The business enjoys substantial barriers to entry with stable margins and in Australia, enjoys exclusive rights to the production of blood plasma-derived medicines. The company earns over 90% of its profits offshore and benefits from a falling AUD. Key catalysts over the next 12 months will be news around the clinical trials of CSL 112, a new treatment aimed at preventing secondary heart attacks. If CSL 112 is approved, this is expected to add ~ $450 million annually to CSL’s profits.
CSL was weak after the results in August 2022 after the market misinterpreted the guidance which included all the negatives of the Vifor acquisition (extra shares integration costs), but none of the benefits. This saw CSL fall to $267 in October but has rallied off these lows but finished today up 1% to 307.75