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CSL fair value unchanged despite vaccine blow

Emma Rapaport  |  14 Dec 2020Text size  Decrease  Increase  |  
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Morningstar analysts have maintained their fair value for homegrown biotech CSL despite the federal government's decision to abandon the University of Queensland's covid-19 vaccine candidate, known as v451.

"As we called out previously, we had not factored any revenue related to v451 into our forecasts given the sheer number of candidates worldwide in clinical development and v451 still being early in a Phase 1 clinical trial," Morningstar director of equity research Mathew Hodge says.

"Although this is likely to save CSL on planned research and development investment, we expect any reduction to be modest and for the funds to be redirected to other candidates across its six therapeutic areas."

Hodge adds that CSL (ASX: CSL) does not anticipate any impact to its previously provided fiscal 2021 revenue guidance of 6 per cent to 10 per cent and NPAT growth guidance of 3 per cent to 8 per cent.

As such, Morningstar’s forecasts of revenue growth of 10 per cent and NPAT growth of 6 per cent for fiscal 2021 are unchanged.

Shares in the market heavyweight tumbled following the news that the vaccine trial had been dumped, down 2.9 per cent on Friday to $292.32. Shares were down another 1.14 per cent at 12:17pm Sydney-time on Monday.

CSL shares screen as overvalued, trading at a premium to Morningstar's $254 fair value estimate.

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CSL | Price to Fair Value, YTD


Source: Morningstar

Phase 1 data for v451 showed a robust response to the virus and a strong safety profile across the 216 trial participants. However, the generation of antibodies directed toward a component of the vaccine caused false positives on certain HIV diagnostic tests. This was anticipated prior to the trial but meant major changes would need to be made to HIV testing procedures to accommodate the rollout of v451.

The federal government has scrapped the purchase millions of doses, with Prime Minister Scott Morrison announcing increased orders for other vaccine candidates to ensure enough for Australians.

The blow for CSL meant the healthcare sector dropped 2.24 per cent on Friday.

CSL is currently manufacturing roughly 30 million doses of the University of Oxford/AstraZeneca covid-19 vaccine candidate, known as AZD1222. Pending a successful Phase 3 clinical trial, first doses are expected to be released in Australia in early 2021 with plans to manufacture an additional 20 million doses.

The US gave the final go-ahead to the nation’s first covid-19 vaccine over the weekend, marking what could be the beginning of the end of an outbreak that has killed nearly 300,000 Americans.

The UK has begun the mass rollout of the Pfizer-BioNTech vaccine against covid-19 after giving emergency authorisation last week.

Morningstar analysts do not factor any material profit from this due to CSL's humanitarian agenda.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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