Asia Pacific Equity Research
16 August 2023
J P M O R G A N
www.jpmorganmarkets.com
CSL Limited
FY23 result as expected, yield strategy offsets
competitive threat
Overweight
CSL.AX, CSL AU
Price (15 Aug 23):A$272.80
Price Target (Jun-24):A$320.00
Australia
Australia Healthcare
David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Bloomberg JPMA LOW
Silvia Luo
(61-2) 9003-6781
silvia.luo@jpmorgan.com
J.P. Morgan Securities Australia Limited
Half Yearly Forecasts (FYE Jun)
Adj. EPS ($)
2023A 2024E 2025E
H1 3.76 4.38 4.82
H2 1.64 1.81 2.15
FY 5.39 6.20 6.98
Style Exposure
We believe CSL is on track to deliver double digit earnings growth over the next
few years as its plasma supplies return to growth, demand for its key therapies
expands, and margins recover. A key risk to this scenario is the competitive threat
from anti-FcRn therapies from Argenx and others in the autoimmune segment,
most notably for CIDP. While CSL and its plasma competitors are dismissive of the
threat, we have made allowance for competition by cutting our immunoglobulin
(Ig) sales. However, the new details on CSL’ s Yield Maximisation Strategy gives
us confidence that CSL will have a clear competitive advantage to offset any
pressures on this front. We retain our OW rating given an improved medium term
outlook and the upside to our unchanged DCF-based price target of $320.
● Ig yield on track to lift 25% above pre-COVID levels. Management detailed
its multi-Horizon Yield Maximisation Strategy confirming it has a pilot plant
running which is delivering a double digit lift in Ig yields. While this Horizon
2 program will take a number of years to gain regulatory approval and to be
rolled out across the global fractionation infrastructure, it should provide a
clear competitive advantage. Nearer term, the Horizon 1 program is delivering
more gradual yield improvements and the roll-out of the Rika collection system
in 2024 should boost collection yields.
● Behring margin recovery has begun. Gross margins lifted for the first time
in three years in the June half (albeit sequentially), as the benefits of the
recovery in plasma collection volumes and lower per litre costs start to flow
through COGS. While there are multiple drivers of the improvement including
lower cost per litre, new products (Hemgenix and Garadacimab mentioned),
ASP mix shift and scale/efficiency measures; the CFO guided to “modest”
gross margin increases in FY24 and FY25 and did acknowledge there are
“many more tailwinds than headwinds”. This uplift will be an important driver
of earnings growth if, as we expect, sales growth slows.
● Vifor on track and Seqirus growing despite softer demand. The Vifor
integration is going to plan and management expressed confidence it will
deliver strong top line growth despite generic competition coming to Europe
more quickly than expected. The Seqirus flu division enjoyed a strong FY23
and management expressed confidence it can continue to deliver earnings
growth despite lower vaccination rates thanks to its differentiated portfolio and
yield improvement from the cell base manufacturing.
● Earnings largely unchanged. We made only minor revisions to our FY24 and
FY25 NPATA forecasts after the guidance was pre-announced. However we
did lift the segmental results in light of the FY23 result. This was offset by
higher operating costs and higher interest but lower tax. We also lifted the
group dividends by 4% and 2% in FY24 and FY25, respectively (Figure 5).
See page 13 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
Sources for: Style Exposure – J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates.
2David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Price Performance
YTD 1m 3m 12m
Abs -5.2% 4.5% -11.4% -7.0%
Rel -9.0% 4.4% -12.1% -11.1%
Company Data
Shares O/S (mn) 482
52-week range (A$) 314.28-255.87
Market cap ($ mn) 85,365.10
Exchange rate 1.54
Free float(%) 99.3%
3M - Avg daily vol (mn) 0.96
3M - Avg daily val ($ mn) 173.5
Volatility (90 Day) 19
Index ASX 100
BBG BUY|HOLD|SELL 16|3|1
Key Metrics (FYE Jun)
$ in millions FY23A FY24E FY25E FY26E
Financial Estimates
Revenue 13,310 14,745 15,702 16,522
Adj. EBITDA 3,900 4,658 5,257 5,795
Adj. EBIT 3,069 3,800 4,377 4,893
Adj. net income 2,610 2,999 3,377 3,805
Adj. EPS 5.39 6.20 6.98 7.86
BBG EPS 5.10 6.16 7.25 -
Cashflow from operations 2,601 4,105 3,594 4,046
FCFF 1,733 4,040 3,499 3,782
Margins and Growth
Revenue growth 26.0% 10.8% 6.5% 5.2%
EBITDA margin 29.3% 31.6% 33.5% 35.1%
EBITDA growth 4.0% 19.4% 12.9% 10.2%
EBIT margin 23.1% 25.8% 27.9% 29.6%
Net margin 19.6% 20.3% 21.5% 23.0%
Adj. EPS growth 6.5% 14.9% 12.6% 12.7%
Ratios
Adj. tax rate 3.2% 5.3% 9.7% 10.7%
Interest cover 10.5 10.0 11.7 13.3
Net debt/Equity 0.6 0.4 0.3 0.2
Net debt/EBITDA 2.7 1.8 1.3 0.9
ROCE 11.4% 12.5% 13.0% 13.5%
ROE 17.2% 18.1% 18.5% 18.8%
Valuation
FCFF yield 2.0% 4.7% 4.1% 4.4%
Dividend yield 1.3% 1.4% 1.5% 1.7%
EV/Revenue 7.1 6.5 6.1 5.8
EV/EBITDA 24.4 20.4 18.1 16.4
Adj. P/E 32.8 28.6 25.4 22.5
Summary Investment Thesis and Valuation
Investment Thesis
Despite the return of plasma collections back to pre-pandemic
levels, the cost environment remains challenging with some
threat to the reversion back to pre-COVID Behring gross
margins. We expect donor rates to slowly return to gross margin
over the medium term. While CSL’ s Yield Maximisation
Strategy Guidance introduced at the earnings result injected
some confidence to the business we are still cautious of the
competitive threat from anti-FcRn therapies from Argenx and
others in the autoimmune segment, most notably for CIDP. That
said, more positives outweigh the potential threats with this
result confirming the growth opportunities and risk mitigation
efforts at play. CSL remains our key top pick; Overweight
retained.
Valuation
Our Jun-24 price target is based on a DCF methodology
(terminal growth assumption of 3.0%, WACC 6.6%, beta 0.75)
with a five-year forecast period. Our spot valuation is rolled
forward at the cost of equity, less any dividends to be paid
between now and the price target date. Our valuation uses a spot
AUD/USD forecast of 0.67.
Performance Drivers
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and J.P. Morgan estimates for all other tables. Note: Price history may not be
complete or exact.
3David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
FY23 Result: Charting the focal points
Ig recovery supported by plasma collections
Ig demand is growing back strongly (up 21% in FY23) supported by
the recovery in plasma with collections up 31% year-on-year to
“record levels”. The CEO indicated he is “bullish” Ig volumes will
continue to grow in the high-single to low-double-digit rate. We
expect the strong Ig sales growth to continue into FY24.
Behring margins starting to lift
Behring reported a gross margin of 49.4% in the June-half, which is a
~140bp improvement sequentially. The CFO reiterated previous
guidance that Behring’s gross margins will return to pre-COVID level
within 3-5 years, but warned the path to margin recovery is different
to the COVID driven decline. While plasma costs per litre (CPL) are
expected to continue to moderate, the cost of plasma is unlikely to
track back to pre-COVID levels anytime soon.
Figure 1: Ig sales and pcp growth
Sales on LHS (US$m), Growth pcp (% - RHS).
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1000
1200
1400
1600
1800
2000
2200
2400
2600
Ig sales (US$m) Constant currency sales growth
Source: Company reports.
Figure 2: Behring Revenue and Gross Margin
Revenue in US$m (LHS) and Gross margin (% - RHS)
0%
10%
20%
30%
40%
50%
60%
70%
1000
1500
2000
2500
3000
3500
4000
4500
5000
Behring Revenue Behring Gross Margin (%)
Source: Company reports.
Mix supports margin lift for Seqirus
Seqirus reported gross margin of 62.2% which was ~140bps ahead of
our estimates. Sales were up a solid 9% despite a lower rate of
vaccination across the Northern Hemisphere underpinned by a 30%
lift in Flucelvax sales. Another solid year is expected in FY24 despite
acknowledgement of declining vaccination rates. The future growth
will continue to be supported by the group’s differentiated portfolio
and improved yields from is cell-based production.
Ig yield strategy detailed in two stages
CSL has two major yield enhancement programs underway which
will run concurrently and could deliver a 20%+ lift in yields. The first
stage, Horizon 1, will deliver a 5% lift over the next few years.
Horizon 2 will see proprietary process changes, confirmed at a pilot
level, which will deliver a “step change” in yield. The new process is
up and running at a pilot plant which has so far delivered a double-
digit lift in yield.
Figure 3: Seqirus product sales split
0%
10%
20%
30%
40%
50%
60%
70%
0
300
600
900
1200
1500
1800
FY17 FY18 FY19 FY20 FY21 FY22 FY23
QIV ex-Cell TIV Fluad Cell Seqirus Gross margin
Source: Company reports.
Figure 4: Ig yield maximisation strategy
Source: Company reports.
4David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
EPS unchanged in FY24 and lifted 1% in FY25
We make minor changes to our earnings given the reiteration of guidance.
Figure 5: Earnings revisions
US$m Previous Revised %chg Previous Revised %chg
Behring 10,334 10,389 0.5% 11,071 11,156 0.8%
Vifor 2,286 2,208 -3.4% 2,414 2,294 -5.0%
Seqirus 2,130 2,148 0.9% 2,263 2,252 -0.5%
Revenue 14,749 14,745 -0.0% 15,748 15,702 -0.3%
Behring 4,413 4,431 0.4% 4,941 4,958 0.4%
Vifor 1,081 1,074 -0.7% 1,136 1,119 -1.5%
Seqirus 1,134 1,184 4.4% 1,183 1,271 7.5%
Segement operating result 6,628 6,689 0.9% 7,260 7,349 1.2%
Margin 44.9% 45.4% 43 bps 46.1% 46.8% 70 bps
R&D 1,468.8 1,526.5 3.9% 1,567.5 1,625.3 3.7%
G&A 946.2 977.2 3.3% 1,009.9 1,040.3 3.0%
Operating profit (EBIT) - Underlying 4,212.9 4,185.3 -0.7% 4,682.2 4,683.2 0.0%
Margin 28.6% 28.4% (18 bps) 29.7% 29.8% 9 bps
Net Interest 447.6 464.2 3.7% 433.5 450.2 3.8%
PBT 3,765.3 3,721.1 -1.2% 4,248.7 4,233.0 -0.4%
Tax 595.3 560.7 -5.8% 716.1 688.0 -3.9%
Minorities 167.2 161.0 -3.7% 184.4 167.9 -8.9%
NPATA 3,002.7 2,999.4 -0.1% 3,348.3 3,377.1 0.9%
Amortisation & impairment of acquired IP 250.0 300.0 20.0% 255.0 306.0 20.0%
Acquisition - integration & accting adustments 78.5 85.0 8.2% - - -
Less tax credit on adjustments 14.9 58.0 288.7% - - -
NPAT Statutory 2,689.1 2,672.4 -0.6% 3,093.3 3,071.1 -0.7%
EPS - reported 557.7 554.0 -0.7% 639.4 634.4 -0.8%
EPS - adjusted 620.6 619.6 -0.2% 692.1 697.6 0.8%
DPS (cps) 232 241 3.9% 256 261 2.0%
FY24 FY25
Source: J.P. Morgan estimates, Company data.
FY24 Guidance
Management maintained FY24 guidance for NPATA in the range of US$2,900-3,000m
(13 - 17% growth in constant currency).
We forecast for FY24 NPATA - J.P.Morgan estimate $2,999m.
Other factors in the guidance include:
• Revenue growth of 9 - 11% in constant currency.
• Operating expenses. R&D maintained at 10-11% of revenue.
• Double digit new plasma collection centres to be built.
• Capex of ~$800m.
5David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
FY23 Result: Key takeaways
Table 1: CSL - Group Result vs JPMe
US$m FY22A FY23e FY23A Diff vs JPMe FY23 %gth
Sales of goods 10,136.3 12,773.6 12,776.0 0.0% 26.0%
Pandemic Res Fees 162.2 150.8 156.0 3.4% -3.8%
Royalties Revenue 194.6 210.8 242.0 14.8% 24.4%
Other Income 68.8 55.5 136.0 144.8% 97.7%
Total Revenue 10,562 13,191 13,310.0 0.9% 26.0%
Cost of Sales -4,830 -5,405 -6,060.0 12.1% 25.5%
Gross Profit 5,735 7,089 7,250.0 2.3% 26.4%
margin 54.3% 53.7% 54.5% 73bps 18bps
Sales & Marketing -960.7 -1,481.4 -1,454.0 -1.8% 51.3%
Segment Operating Result 4,773.9 5,607.9 5,796.0 3.4% 21.4%
R&D -1,043.6 -1,357.5 -1,232.0 -9.2% 18.1%
General & Admin -648.0 -850.3 -907.0 6.7% 40.0%
Operating Profit (EBIT) 3,082.3 3,400.2 3,657.0 7.6% 18.6%
Finance Costs net -147.8 -380.1 -406.0 6.8% 174.7%
Income Tax Expense -553.8 -323.2 -504.0 55.9% -9.0%
Minorities - -137.9 -137.0 -0.7% -
Underlying Net Profit (NPATA) 2,380.7 2,558.9 2,610.0 2.0% 9.6%
Non recurring items 126.0 443.4 416.0 -6.2% 230.2%
Statutory Net Profit 2,254.7 2,115.6 2,194.0 3.7% -2.7%
NPATA basic EPS 5.08 5.31 5.41 1.9% 6.5%
Statutory basic EPS 4.81 4.39 4.55
DPS 222.0 227.0 236.0 4.0% 6.3%
Source: J.P. Morgan estimates, Company data.
See below for our key takeaways from the FY23 call.
• Immunoglobulin (Ig) and albumin yield expected to lift by 20% by FY30. CSL
has two major yield enhancement programs underway which will run concurrently
and could deliver a 20% lift in yields. The first stage, Horizon 1, will deliver a 5%
lift over the next few years supported by data analytics and process changes, which
will come on top of a 5% lift since FY19. Horizon 2 will see proprietary process
changes, confirmed at a pilot level, which will deliver a “step change” in yield. The
new process is up and running at a pilot plant which has so far delivered a double-
digit lift in yield. This change will only impact on Ig and albumin yield (not all
plasma will go through the new process) and will require regulatory approvals. The
Horizon 2 yield lift will not be in place until later this decade. Management expects
the lift in yield to be highly value creating and a clear competitive advantage.
• Ig sales growth expected to continue with anti-FcRn threat played down. Ig
demand is growing back very strongly (up 21% in FY23). The CEO indicated he is
“bullish” Ig volumes will continue to grow in the high-single to low-double-digit
rate. Turning to the threat from Argenx’s Vyvgart in CIDP, CSL argue Ig will remain
the standard of care and expressed skepticism the patients will be moved onto new
therapies. The CEO also pointed to the growth potential in underserved
immunodeficiencies both in SID and PID.
• Behring gross margin guidance reiterated and clarified. The CFO reiterated
previous guidance that Behring’s gross margins will return to pre-COVID level
within 3 - 5 years, but warned the path to margin recovery is different to the COVID
6David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
driven decline. While plasma costs per litre (CPL) are expected to continue
moderate, the cost of plasma is unlikely to track back to pre-COVID levels. The
uplift in margin will also be driven by high margin new products (Hemgenix and
Garadacimab named), ASP mix and the Horizon 1 yield improvement.
• Plasma collections and Rika roll out. Plasma collections lifted 31% in FY23 and
the cost per litre (CPL) in June was 14% lower than the same time last year. Twelve
centres were opened in FY23 with a similar number planned in FY24. Mexican
border centres are also recovering. Rika devices have been rolled out in more than
ten centres, but supply chain challenges continue to be worked through with
Terumo. The next six months will be a critical period for the roll-out with
management promising an update at the half year result. The continued use of
Haemonetics equipment has not materially impacted on the average cost per litre.
• Seqirus to continue to grow despite slowing vaccination. The 9% revenues
growth was underpinned by a 30% lift in Flucelvax sales. Another strong year is
expected in FY24 despite acknowledgement of declining vaccination rates. The
future growth will continue to be supported by the group’s differentiated portfolio
and improved yields from is cell-based production.
• Vifor still on track despite generic competition. Sales lifted 14% in the eleven
months of FY23 (vs. unaudited FY22) which was in-line with management’s
expectations. Iron injectable sales were strong ex-US but were held back by “step-
edits” introduced by insurers in the US. This headwind has started to stabilise.
Commenting on the emergence of generic competition for Injectafer in Europe, the
CEO noted the approval path in Europe had been different to the group’s
expectations resulting in competition earlier than previously anticipated. The group
has accelerated its preparation and is ready. The CEO noted the upside from the
label expansion to include heart failure in the US and guided to 10% top line growth
over the medium term.
• Operating leverage expected. Sales and marketing cost for the Behring and Seqirus
division were largely in line with the prior year, with the uplift due to Vifor. The
CFO also highlighted General and Administrative costs as a percentage of revenue
has been trending down since FY21. R&D in FY24 will remain within the 10-11%
sales envelope in FY24.
• Pricing environment supportive with gap between US and ex-US reduced.
Management is confident the price and mix dynamic will remain favourable with
subcu Ig expected to again grow faster than lower value IVIG in future. Pricing in
tender markets has improved and CSL has seen its list prices increase in most
European countries, which will support tender and contract pricing.
• FX guidance – no impact in FY24 if current rates prevail. The large FX
headwind in FY23 of $245m was attributed to the rise of the US$, particularly
against the Chinese Yuan, the Euro and the Pound.
• FY23 beat due to property sale. Stripping out this $40m benefit, the result would
have been in line with the commentary at the recent trading update.
• Capex to decline by 30% in FY24 as expansion programs wind down.
Segment results
7David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Table 2: Behring - FY23 Result
US$m
Behring FY22A FY23e FY23A Diff vs JPMe FY23 %gth
Sales of goods 8,360 8,950 8,968.0 0.2% 7.3%
Royalties revenue 194.6 188.1 215.0 14.3% 10.5%
Other 44.2 40.0 107.0 167.5% 142.1%
Total Revenue 8,598 9,178 9,290.0 1.2% 8.0%
Gross profit 4,582 4,447 4,575.0 2.9% -0.1%
margin 53.3% 48.5% 49.2% 79bps -404bps
Sales and marketing exp 774.0 816.9 782.0 -4.3% 1.0%
Segment operating result 3,807.5 3,630.5 3,793.0 4.5% -0.4%
margin 44.3% 39.6% 40.8% 127bps
Source: J.P. Morgan estimates, Company data.
Table 3: Behring product sales
US$m FY22A FY23e FY23A Diff vs JPMe FY23 %gth
Immunoglobulins 4,024.0 4,478.7 4,675.0 4.4% 16.2%
Albumin 1,072.0 1,111.1 1,109.0 -0.2% 3.5%
Haemophilia - -
Recombinants 759.0 828.0 703.0 -15.1% -7.4%
Plasma 407.0 382.4 490.0 28.1% 20.4%
Specialty 1,792.0 1,849.8 1,831.0 -1.0% 2.2%
Other 305.6 300.0 482.0 60.7% 57.7%
Total Product Sales 8,360 8,950 9,290 3.8% 11.1%
Other income 44.2 40.0 107.0 167.5% 142.1%
Royalties 194.6 188.1 215.0 14.3% 10.5%
Total Sales 8,598 9,178 9,612.0 4.7% 11.8%
Source: J.P. Morgan estimates, Company data.
Table 4: Seqirus - FY23 Result
US$m
Seqirus FY22A FY23e FY23A Diff vs JPMe FY23 %gth
Sales of goods 1,777 1,846 1,851.0 0.3% 4.2%
Pandemic Facility Res Fees 162 151 156.0 3.4% -3.8%
Other 25 25 24.0 -3.4% -2.4%
Total Revenue 1,964 2,021 2,031.0 0.5% 3.4%
Gross profit 1,153 1,231 1,264.0 2.7% 9.6%
margin 58.7% 60.9% 62.2% 135bps 351bps
Sales and marketing exp 186.7 185.0 182.0 -1.6% -2.5%
Segment operating result 966.4 1,045.9 1,082.0 3.5% 12.0%
margin 49.2% 51.7% 53.3%
Source: J.P. Morgan estimates, Company data.
8David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Table 5: Vifor - FY23 Results
US$m
Vifor FY22A FY23e FY23A Diff vs JPMe FY23 %gth
Sales of goods - 1,956.6 1,957.0 0.0% -
Royalties Revenue - 22.7 27.0 18.9% -
Other - 5.7 5.0 -12.3% -
Total Revenue - 1,991 1,989.0 -0.1% -
Gross profit - 1,411 1,411.0 -0.0% -
margin - 70.9% 70.9% 8bps
Sales and marketing exp - 479.5 490.0 2.2% -
Segment operating result - 931.5 921.0 -1.1% -
margin - 46.8% 46.3% -48bps
Source: J.P. Morgan estimates, Company data.
9David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Working capital cycle
Figure 6: Days Sales Outstanding
Source: Company reports.
Figure 7: Days Inventory Held
Trailing 12mth average
Source: Company reports.
Figure 8: Days Payables Outstanding
Source: Company reports.
Figure 9: Working Capital Cycle (days)
Source: Company reports.
10
David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Valuation
Table 6: CSL - Peer comparables table
PER EV/EBITDA
Company Ticker Currency Price 1yr 2yr 1yr 2yr Mkt Cap (A$m)
CSL Limited CSL AU AUD 272.80 28.2x 24.0x 18.5x 16.2x 131,590
Takeda 4502 JP JPY 4449 9.7x 9.4x 9.6x 9.1x 74,741
Grifols GRF SM EUR 13.42 15.4x 10.9x 11.6x 9.4x 13,828
Average (mkt cap
weighted) 21.1x 18.2x 15.1x 13.4x
Source: Bloomberg Finance L.P. estimates. Data as of 15 August 2023.
CSL relative valuation charts
Figure 10: 12m fwd P/E
Currently trading at 21% discount to 5yr avg
Source: Bloomberg Finance L.P.
Figure 11: EV/EBITDA
Currently trading at 20% discount to 5yr avg.
Source: Bloomberg Finance L.P.
Figure 12: 12m fwd relative P/E premium vs. ASX100
Currently trading at 36% discount to 5yr avg relative to ASX100
Source: Bloomberg Finance L.P. Source: Bloomberg Finance L.P.
11
David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
Investment Thesis, Valuation and Risks
CSL Limited (Overweight; Price Target: A$320.00)
Investment Thesis
Despite the return of plasma collections back to pre-pandemic levels, the cost environment
remains challenging with some threat to the reversion back to pre-COVID Behring gross
margins. We expect donor rates to slowly return to gross margin over the medium term.
While CSL’ s Yield Maximisation Strategy Guidance introduced at the earnings result
injected some confidence to the business we are still cautious of the competitive threat from
anti-FcRn therapies from Argenx and others in the autoimmune segment, most notably for
CIDP. That said, more positives outweigh the potential threats with this result confirming
the growth opportunities and risk mitigation efforts at play. CSL remains our key top pick;
Overweight retained.
Valuation
Our Jun-24 price target is based on a DCF methodology (terminal growth assumption of
3.0%, WACC 6.6%, beta 0.75) with a five-year forecast period. Our spot valuation is rolled
forward at the cost of equity, less any dividends to be paid between now and the price target
date. Our valuation uses a spot AUD/USD forecast of 0.67.
Risks to Rating and Price Target
Downside risks to our price target and rating include any material deterioration of conditions
in the market of CSL’s core plasma business. We remain cautious that news flow including
threats to the Seqirus or Behring business (i.e. existence of mRNA flu vaccines, anti-FcRn
therapies to name a few) could weigh on the stock if competitors’ trial data results present
a significant negative read-through for CSL. Further, there may also be ongoing competitive
therapies and generic competition against the Vifor business although we note the earnings
contribution is smaller than Behring.
12
David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N

CSL Limited
$ in millions, year end Jun
Profit And Loss FY22 FY23 FY24E FY25E FY26E
Revenue 10,562 13,310 14,745 15,702 16,522
Revenue growth 2.4% 26.0% 10.8% 6.5% 5.2%
COGS 0 0 0 0 0
Operating Expenses (6,966) (9,410) (10,087) (10,445) (10,727)
EBITDA 3,751 3,900 4,658 5,257 5,795
EBITDA growth 1.4% 4.0% 19.4% 12.9% 10.2%
EBITDA margin 35.5% 29.3% 31.6% 33.5% 35.1%
Amortisation (223) (341) (347) (354) (361)
Depreciation (446) (490) (511) (526) (542)
EBIT 3,082 3,069 3,800 4,377 4,893
Other Income 13 - - -
Other Expenses - (34) - - -
Net Interest (161) (372) (464) (450) (435)
Pre-Tax Profit 2,935 2,663 3,336 3,927 4,458
Tax (554) 84 (176) (382) (476)
Tax Rate 18.9% 3.2% 5.3% 9.7% 10.7%
Minorities 0 (137) (161) (168) (177)
Abnormals (post tax) 29 (503) (327) (306) (312)
Reported NPAT 2,255 2,107 2,672 3,071 3,493

Normalised NPAT 2,381 2,610 2,999 3,377 3,805
Growth 0.8% 9.6% 14.9% 12.6% 12.7%

End of Period Shares 482 482 482 482 482
EFPOWA 470 484 484 484 484

Reported EPS 4.81 4.37 5.54 6.37 7.24
Normalised EPS 5.06 5.39 6.20 6.98 7.86
Growth (2.2%) 6.5% 14.9% 12.6% 12.7%

DPS 2.22 2.36 2.41 2.61 2.97
Growth 0.0% 6.3% 2.1% 8.3% 13.8%

DPS/EPS payout 46.3% 54.2% 43.7% 41.1% 41.2%

Cash Flow Statement FY22 FY23 FY24E FY25E FY26E
Net Profit for Cashflow 2,255 2,107 2,672 3,071 3,493
Depreciation & Amortisation 668 831 858 880 902
Non Cash Items - - - - -
Working Capital Changes (237) (1,035) 228 (727) (748)
Other Operating Cashflows (57) 698 348 370 400
Cashflow from Operating Activities 2,629 2,601 4,105 3,594 4,046

Capex (1,079) (1,228) (505) (501) (653)
Net Acquisitions (557) (10,998) (325) (333) (341)
Other Investing cashflows (1) 0 0 0 0
Investing Cash Flow (1,636) (11,843) (830) (835) (994)

Inc/(Dec) in Borrowings 3,776 1,741 0 0 0
Equity Issued 4,988 34 0 0 0
Dividends Paid (1,039) (1,085) (1,152) (1,216) (1,323)
Other Financing Cashflows (50) (234) 0 0 0
Financing Cash Flow 7,676 456 (1,152) (1,216) (1,323)

Net Cash Flow 8,604 (8,825) 2,123 1,543 1,729


Relative recommendation: Overweight

Valuation Summary A$m A$ps
Current mkt capitalisation 131,590.30 272.80

Price Target 320.00
Capital growth to price target 17.3%

Trading Multiples FY22 FY23 FY24E FY25E FY26E
PE Pre-abnormals 34.9 32.8 28.6 25.4 22.5
PE Reported 36.9 40.6 32.1 27.9 24.5
EV/EBITDA 25.4 24.4 20.4 18.1 16.4
EV/EBIT 30.9 31.0 25.0 21.7 19.4

Key Ratios FY22 FY23 FY24E FY25E FY26E
Dividend Yield 1.3% 1.3% 1.4% 1.5% 1.7%
Franking 0.0% 0.0% 0.0% 0.0% 0.0%
Return on Assets (%) 10.2% 8.1% 8.1% 8.6% 9.2%
Return on Equity (%) 20.7% 17.2% 18.1% 18.5% 18.8%
ROIC (%) 12.4% 11.4% 12.5% 13.0% 13.5%

Leverage FY22 FY23 FY24E FY25E FY26E
Gearing (Net Debt / Equity) NM 0.6 0.4 0.3 0.2
Gearing (ND / (ND + E)) (5.6%) 37.5% 30.8% 25.0% 18.6%
Net Debt / EBITDA NM 2.7 1.8 1.3 0.9
EBIT Interest Cover (x) 19.2 8.3 8.2 9.7 11.3

Balance Sheet FY22 FY23 FY24E FY25E FY26E
Cash 10,436 1,548 3,632 5,175 6,904
Receivables 1,657 2,205 2,425 2,581 2,715
Investments 0 0 0 0 0
Inventories 4,333 5,466 5,096 5,798 6,493
Other Current Assets 34 40 40 40 40
Total Current Assets 16,461 9,259 11,194 13,595 16,152
Net PPE 7,017 7,797 7,791 7,767 7,878
Total Intangibles 2,638 16,446 16,424 16,404 16,385
Other Non Current Assets 2,231 2,732 2,610 2,442 2,264
Total Non Current Assets 11,885 26,975 26,825 26,612 26,527
Total Assets 28,346 36,234 38,019 40,207 42,679
Creditors 2,301 2,947 3,025 3,156 3,236
Current Borrowings 4,494 1,055 1,055 1,055 1,055
Current Tax Provisions 132 296 483 685 907
Other Current Provisions 182 310 310 310 310
Other Current Liabilities 0 0 0 0 0
Total Current Liabilities 7,108 4,608 4,873 5,206 5,508
Non Current Creditors 0 0 0 0 0
Non Current Borrowings 5,164 11,172 11,172 11,172 11,172
Deferred Tax Liabilities 670 1,464 1,464 1,464 1,464
Other Non Current Provisions 102 467 467 467 467
Other Non Current Liabilities 536 493 493 493 493
Total Non Current Liabilities 6,660 13,800 13,800 13,800 13,800
Total Liabilities 13,769 18,408 18,673 19,006 19,308
Equity 484 517 517 517 517
Other Equity 0 0 0 0 0
Reserves 590 648 648 648 648
Retained Profits 13,503 14,621 16,141 17,996 20,166
Outside Equity Interests 0 2,040 2,040 2,040 2,040
Total Shareholders Equity 14,578 17,826 19,346 21,201 23,371
Net Debt (779) 10,679 8,595 7,052 5,323
Source: Company reports and J.P. Morgan estimates.
Note: $ in millions (except per-share data).Fiscal year ends Jun. o/w - out of which
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(61-2) 9003-6353
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Asia Pacific Equity Research
16 August 2023 J P M O R G A N
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Date Rating Price (A$) Price Target
(A$)
19-Aug-20 N 293.29 285
02-Oct-20 N 287.78 290
11-Nov-20 OW 304.60 330
07-Jan-21 OW 278.38 306
27-Jan-21 N 275.54 293.7
09-Feb-21 N 277.09 294
19-Feb-21 N 289.00 284
11-Mar-21 N 252.21 261
07-Apr-21 N 263.60 266.2
16-Jul-21 N 275.15 280
18-Aug-21 N 297.94 285
15-Dec-21 N 297.27 315
08-Feb-22 N 254.61 285
17-Feb-22 OW 263.69 295
07-Jul-22 OW 286.13 315
18-Aug-22 OW 292.50 330
15-Feb-23 OW 307.75 340
13-Apr-23 OW 303.89 358
15-Jun-23 OW 287.25 340
18-Jul-23 OW 258.82 320
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
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Coverage Universe: Low, David: Ansell Limited (ANN.AX), CSL Limited (CSL.AX), Cochlear Limited (COH.AX), Estia Health (EHE.AX),
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Care (RHC.AX), Regis Healthcare (REG.AX), ResMed Inc (RMD), ResMed Inc – CDI (RMD.AX), Sonic Healthcare (SHL.AX)
J.P. Morgan Equity Research Ratings Distribution, as of July 08, 2023
Overweight
(buy)
Neutral
(hold)
Underweight
(sell)
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18
David Low AC
(61-2) 9003-6353
david.low@jpmorgan.com
Asia Pacific Equity Research
16 August 2023 J P M O R G A N
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Completed 16 Aug 2023 06:22 AM AEST Disseminated 16 Aug 2023 06:22 AM AEST