Double-digit returns collide with drug trial setback for CSL

CSL (ASX: CSL) should have been riding high today, with the company reporting double-digit growth in profits for the half year. Instead, we’ve watched share prices tumble 7.7% in the space of two days.

It’s no secret as to why, with the healthcare giant announcing on Monday that Phase 3 AEGIS-II trials for CSL112 failed to show any significant efficacy in reducing the risk of cardiovascular death in patients who had experienced non-fatal heart attacks. You can read more in this article by my colleague Carl Capolingua.

To make matters worse, the outlook for CSL Vifor has been downgraded off the back of a challenging and competitive market environment.

So is there any positive news for this ASX darling?

One spot of good news came in the form of strong results from its plasma business, along with the prospect of approval for Garadacimab (for patients with end-stage kidney disease) later this year. There’s also more in the pipeline to be positive about.

In this wire, I spoke to IML’s Daniel Moore about the results and whether investors should stick with CSL, despite this week’s setbacks. 

Key results

• Revenue up 11% to $8.05 billion; Total revenue for CSL Behring of $5,238m, up 14%, and immunoglobulin sales increased 23%.
• Net profit after tax up 20% to $1.94 billion
• Underlying profit up 13% to $2.06 billion
• Research and development expenses $669 million, up 11%
• Cashflow from operations $1,069 million, up 9%
• Net assets of $19,162 million
• Earnings per share up 11% to $4.18/share
• Interim dividend of US$1.19/share
• Estimated FY24 underlying profit to be in the range of $2.9 billion to $3.0 billion
• For more financial data on CSL, head to Market Index.

1. In one sentence, what was the key takeaway from this result?

CSL’s plasma business had a very strong result with IG revenues up 23% while their recent acquisition Vifor disappointed.

2. Were there any major surprises in this result that you think investors should be aware of?

The results were generally in line with expectations. The key thing was yesterday’s news about the failure of the Phase 3 trial of the CSL112 drug. It’s been in R&D for almost 20 years. They still have plenty of other options in the pipeline, but it was a big hit with that failure.

3. Would you buy, hold or sell this stock on the back of this result?

HOLD

It’s a hold for us. It is a great business, and we like the three to five year outlook in terms of double-digit earnings growth. It’s priced fairly, I would say (post the falls in price of the last two days) and it’s had a pretty good run in the past few months.

4. What’s your outlook on this stock and the sector over the year ahead? Are there any risks to this company and its sector that investors should be aware of?

We like the outlook for CSL in terms of its earnings growth - it's the largest holding in the Australian Share Fund. The biggest risk for the sector is valuations. The market has priced in several interest rate cuts which are helping valuations. If those cuts don’t happen, it’s a risk for the sector.

5. From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious on the market in general?

I’m generally cautious. The market is pricing in a combination of several interest rate cuts as well as strong consensus EPS growth. It’s hard for both of those to be right.