CSL (CSL) reported their full-year 2024 profit results, which were very solid, benefiting from stronger plasma collections and a strong USD, which is a positive for Australian investors and one of the reasons why we own the stock. The HNW Growth Portfolio holds a 9% weighting to CSL.

Key Points:

  • Record Profits: Net profits were up +15% to a record US$3 billion and at the top of guidance. CSL’s largest division, Behring, specifically from their immunotherapy division, did the heavy lifting in 2024, increasing revenue by 20%. Elsewhere, CSL’s flu vaccine division posted a modest 4% increase in revenue to $2.1 billion following a soft vaccination period in the northern hemisphere earlier this year as consumers suffered from vaccine fatigue from the pandemic. This was Vifor’s first full-year contribution after being acquired by CSL in August 2022, delivering sales of US$2 billion and US$956 million of profits, a high-profit margin (46%) business that can grow fast with a suite of products in the R&D pipeline.
  • A better Vampire: The RIKA plasma donation system has now been rolled out to 84 centres of the 350 centres in the USA, with the rest to be fully rolled out before the end of FY25. This new system will have a large benefit to CSL, as the system reduces the donation time by 30% but improves the yield by 10%, leading to a 10% reduction in costs per litre of blood.
  • Lower Capex Requirement: Following the roll-off of the CSL-112 trials, we will see a lower capital expenditure requirement going forward, allowing CSL to invest their dollars in much more profitable areas or increase the dividend payout ratio.
  • Dividend Up: +11% to A$4.03 per share, representing a payout ratio of 43% as CSL continues to expense its R&D spend through the P&L rather than capitalising this as an asset on the balance sheet, the much cleaner option in our view though it does lead to a higher reported PE ratio.
  • Guidance: in FY25, CSL management expects profits to be between US$3.2 and US$3.3 billion, up around +10%, as margins continue to expand from lower plasma costs per litre.
  • Why is the stock down? The stock was down today following slightly lower profit guidance than what the market expected, along with slowing growth (+5% to +7%) in renal drug sales from Vifor. CSL has guided that over the medium term, they expect to deliver annualised double-digit earnings growth, which Atlas believes to be attainable through its roll-out of the RIKA system, as well as an increase in influenza vaccinations. A stronger USD has hurt the translation of reported earnings, but as Australian-based investors, this is a positive, not a negative.

CSL finished down -4.5% to $294.78, which was a surprise given that this was a solid result. We are doubtful that many large cap ASX companies will be delivering +15% profit growth this August.

 

Portfolio Strategy: CSL is 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 returning the Behring IG margins back to pre-pandemic levels, which will see double-digit growth across the business over the medium term.