Several price targets for CSL Ltd ((CSL)) have breached $300 recently, as brokers re-evaluate the global opportunity for its plasma collection facilities. The company’s foresight in expanding its plasma collection has enabled significant share for its immunoglobulin products. Critically, demand for immunoglobulin is exceeding supply, and CSL has increased its footprint in the US by 110% over the past five years.
After a US investor briefing on plasma from Takeda, Citi’s CSL growth forecasts for immunoglobulin in FY20-22 have been upgraded. The broker assesses revenue growth for CSL will be driven by a combination of underlying market volume and price growth as well as increases in product mix and some minor market share gains.
The global immunoglobulin market is growing faster than the historical average, the broker adds, and CSL is best positioned because of its investment in plasma collection. Currently the market is growing at around 9-10% per annum.
Credit Suisse assumes CSL will continue to grow above the market, namely with Privigen and Hizentra, because of a continued shift in mix and a reliable supply compared with competitors. The US Food & Drug Authority has not noted any shortages for CSL products. The broker forecasts 15% volume growth for Privigen and 18% for Hizentra.
This year Takeda was short supply of both Gammagard and Cuvitru and Citi notes it has committed to increase plasma supply by 65% over the next five years. Meanwhile, Grifols has increased its plasma collection largely via acquisitions and should have sufficient supply to meet demand.
The broker calculates it is possible for CSL to grow immunoglobulin revenue at around 16% for the next three years as Grifols is yet to launch its SCIg in the US and Takeda has a lot of catching up to do regarding plasma collection.
Macquarie agrees the company’s plasma collection centre network has a competitive advantage relative to peers. The other main operators in the industry have not invested enough in collection capacity and CSL is reaping the reward.
Haemophilia
Haemophilia products accounted for around 15% of CSL Behring revenue and 12% of group revenue in FY19. Recombinant products have also accounted for an increasing proportion of these revenues. Haemophilia is a hereditary condition caused by a gene defect and resulting in impaired blood clotting. Haemophilia A is estimated to occur in 20 per 100,000 people while haemophilia B is estimated in five per 100,000.
Macquarie believes near-term revenue growth in CSL’s haemophilia product is underpinned by Idelvion. Uptake of Idelvion has been robust following the launch and the broker expects further uptake and market share growth out to FY22 is likely. Earnings estimates are upgraded modestly out to FY22, and the target is raised to $300 from $250 in line with these revisions and a lower assumption for the AUD/USD.
Citi upgrades its target to $282.60 from $252.60 and also increases estimates by 1-6% over FY20-22. The broker believes earnings risk is to the upside given the strong dynamics in the plasma market and the company’s superior position in collections.
Europe
Credit Suisse suspects the US political environment is likely to limit any significant price increases, despite the limited supply. CSL generates around 55% of its immunoglobulin revenue from the US. The opportunity lies in Europe as immunoglobulin prices are -20% or more lower than in the US, and the broker believes prices will converge as a result of the strength in immunoglobulin demand.
This would equate to price increases totalling 3.5% in FY20 for CSL, in the broker’s calculations. Credit Suisse assumes 2% growth from a positive mix, i.e. Hizentra, and 13% volume growth, resulting in revenue growth in immunoglobulin of around 18.5% for CSL in FY20.
Moreover, Credit Suisse believes its estimates of 2% price growth beyond FY22 are conservative, as this assumes that pricing in the rest of the world is at -8-10% discount to the US. Credit Suisse has raised its target to $305 from $249, lowering its risk-free rate assumption to 3% while noting sustained lower bond yields. While the valuation may be considered demanding, the broker believes this is justified because of the strong market position and robust fundamentals.
In early November, UBS increased its target to $295 and upgraded to Buy from Neutral. The broker believes CSL’s expertise in deploying collection centres, improving immunoglobulin yield and general manufacturing efficiencies make it best place to benefit from the current demand.
Risks
The main risk ahead for CSL, in Citi’s view, is a likely competitor to Hizentra being launched by Grifols in the current quarter as well as any slowing in albumin volume growth in China, which could pose risk to CSL’s margins. Takeda has also indicated it will launch a competitor to CSL’s Kcentra.
While a number of companies are trialling the use of FcRn inhibitors for treatment of some of the illnesses currently treated with immunoglobulin, at this stage Citi believes it is unlikely these will be commercially available within the next five years.
FNArena’s database has five Buy ratings and two Hold. The consensus target is $273.40, signalling -4.2% downside to the last share price. Targets range from $220.30 (Morgans) to $305.00 (Credit Suisse).
