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CSL shares lower but not for long

Nicki Bourlioufas  |  17 Aug 2016Text size  Decrease  Increase  |  

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Shares in CSL drop after the Aussie biotech posts a fall in full-year profit but are expected to rebound as the market digests the impact of the Novartis acquisition.


Shares in Australian biopharmaceutical company CSL Limited (ASX: CSL) have dropped after the company posted a 10 per cent fall in full-year net profit to US$1.24 billion ($1.6 billion), dragged down by the company's purchase of the loss-making influenza vaccine business Novartis.

However, on an underlying basis, or ignoring the purchase of the Novartis business, net profit for the fiscal 2016 rose 5.2 per cent to US$1.47 billion ($1.9 billion).

Group revenue was US$6.1 billion ($7.87 billion), up 8.2 per cent from a year earlier in constant currency terms.

"On an underlying basis, or excluding the Novartis business, CSL is performing very well and it should continue that momentum," said Morningstar equity analyst Chris Kallos.
In early trade after the announcement, CSL shares fell to as low as $107.35 after the previous closing price of $116.75.

Kallos believes the stock is now trading below its fair value and expects the shares will rebound as the market digests the impact of the Novartis acquisition.

CSL became the world's second biggest flu vaccine business after buying Novartis's flu vaccine division in July 2015.

"It's still an evolving story as it does introduce some seasonality into CSL's risk profile and revenue line, but I think the company is well positioned," said Kallos.

"We remain confident of the company achieving break even in the flu vaccine business by 2018.

"In addition, the underlying business is still robust. Flagship immunoglobulin product sales grew strongly to US$2.46 billion ($3.17 billion), up 11 per cent."

CSL is one of three major players in the global blood-plasma-derived biotherapies space with about a 20 per cent market share and it has about one third of the lucrative US immunoglobulin market.

CSL chief executive officer Paul Perreault said the outlook for next fiscal year remains bright.

"CSL is well positioned for sustainable growth and delivering shareholder value. CSL's net profit after tax is expected to grow approximately 11 per cent at constant currency on the fiscal 2016 result after adjusting for the one-off gains and costs associated with the acquisition of the Novartis influenza vaccines business," he said.

CSL announced a final dividend of approximately $0.89 per share, up 3 per cent on the previous period.

The company also announced its intention to conduct an on-market share buyback of $500 million, following a recent share buyback of $924 million.


Nicki Bourlioufas is a Morningstar contributor.

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