CSL’s interim 2026 underlying EBIT fell 3% on 5% lower plasma sales. Full-year guidance of mid-single-digit earnings growth was reaffirmed, and the Seqirus and Vifor divisions fared relatively well. But the soft plasma result and retirement of CEO Paul McKenzie sent shares down 11%.

Why it matters: Leadership uncertainty is likely to weigh on shares until resolved, but we welcome the change. Plasma earnings were lower than we expected, but immunoglobulin sales grew 5% and gross margin rose 120 basis points on the second half of fiscal 2025, and we expect continued improvement.

  • Acting CEO Gordon Naylor is highly suitable given his knowledge and track record. Naylor held a 33-year tenure at CSL, including as CFO and leading CSL’s vaccines turnaround. We don’t expect big changes in strategy as he committed to the firm’s transformation plan.
  • Ig demand remains strong. CSL guides to double-digit second-half sales growth on recent market share gains and excess industry supply resetting. We expect Ig sales growth to slow to 7% at midcycle on 2% price rises and volume growth from population growth, rising diagnoses, and new indications.

The bottom line: We cut our fair value for narrow-moat CSL by 8% to AUD 270 due to the weaker US dollar and slower plasma margin recovery. However, shares are cheap with the market overly pessimistic, and the share price implies that plasma gross margins will shrink. We think this is unrealistic.

  • We expect continued plasma gross margin expansion. Roughly 80% of our forecast uplift is from initiatives enabling faster and greater yield than competitors, and the rest from a favorable sales mix shift as higher-margin products gain market share.
  • While our 58% midcycle plasma gross margin forecast is largely intact and broadly in line with CSL’s reiterated view, progress has been slow due to recent policy changes creating a one-off headwind of over 100 basis points. We now expect a recovery to 57% by fiscal 2031, from fiscal 2028 previously.

CSL’s Plasma Division Remains Well Positioned

CSL is one of three Tier 1 plasma therapy companies that benefit from an oligopoly in a highly consolidated market. All the players are vertically integrated as plasma sourcing is a key constraint in production. The plasma sourcing market is currently largely balanced with demand. CSL is well positioned, having rationalised its plasma collection centers.

One major threat to plasma products is recombinant products. Recombinants are quickly replacing plasma products in haemophilia treatment despite being more expensive. CSL has an excellent R&D track record and has developed recombinant products for haemophilia. However, we expect modest revenue growth in the haemophilia segment based on competitor Roche’s recombinant Hemlibra.

Immunoglobulin product sales are key to CSL. The use of immunoglobulins is currently growing due to improved diagnosis, rising affordability, and gaining approval for increased indications. This market is not yet impacted by recombinants, although both CSL and competitors are pursuing R&D in Fc receptor-targeting therapy to treat autoimmune diseases.

However, gene therapy represents the biggest risk to the plasma industry as it aims to cure rather than treat diseases. While the potentially prohibitive cost may result in slow adoption, CSL has strategically expanded its scope via the acquisition of Calimmune in fiscal 2018 and licensing a late-stage Haemophilia B gene therapy, Hemgenix, from UniQure in fiscal 2020.

CSL is the second largest influenza vaccine manufacturer, behind Sanofi, and is at the forefront of changes in influenza vaccines, where manufacturing is shifting from egg-based to cell-based culturing.

The company evaluates R&D spend based on the commercial outlook. The strategy for CSL Behring has been to target rare diseases, a typically low-volume, high-price, and high-margin business. There is little reimbursement risk in this area or in the vaccine business, Seqirus.

Bulls say

  • CSL is investing in plasma yield initiatives, leaving it well positioned to take advantage of growth opportunities in the key immunoglobulins market.
  • The acquisition of Calimmune’s gene therapy platform in fiscal 2018 and UniQure’s late stage haemophilia B gene therapy candidate in fiscal 2020 will help defend against emerging competition.
  • CSL has a strong R&D track record and the ongoing rate of investment is ahead of major competitors.

Bears say

  • Areas of the plasma industry could be replaced by newer therapies, which would leave CSL overinvested in plasma collection and fractionation capacity that will be hard to repurpose.
  • Key segments of haemophilia and hereditary angioedema face competitive pressure from Roche’s Hemlibra and Takeda’s Takhzyro that offer more convenient delivery.
  • The R&D pipeline has a highly variable range of outcomes and R&D spending could ultimately amount to nothing.

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Terms used in this article

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.