LA Private

Market smells blood, gives CSL a whack

Shares in pharma giant CSL (ASX:CSL) took a hit yesterday after it revealed a larger than forecast loss from currency movements for its 2022-23 financial year.

Instead of the impact – estimated earlier this year at the interim results, at around $US175 million, CSL told the ASX on Wednesday the figure was now more like a range of $US230 to $US250 million.

While that was a substantial rise, CSL said its profit guidance in constant currency exchange terms for FY23 “remains unchanged”, although it’s “now skewed to the top end of the range”.

It’s guidance range issued at the time of the interim in February called for constant currency earnings of $US2.7 to $US2.8 billion – up 28% to 30% for net profit after tax and amortisation (NPATA). CSL says the outcome will be closer to the $US2.8 billion mark.

Net profit after tax and amortisation without any constant currency adjustment (at actual forex rates) was forecast to be $US2.550 billion for the year to June, up 13% to 18%.

On Wednesday CSL said it “notes the broad range of published analyst profit projections for FY24.”

“After completing the budget for the next financial year (2023-24), CSL advised that its underlying net profit after tax (NPATA) is expected to grow by between approximately 13% to 18% to between $US2.9 billion to $US3 billion in constant currency terms.”

The market reckons there’s a downgrade in there, though some analysts reckon the real story is expectations by CSL management for another double digit earnings increase in 2023-24.

“Our profit result has been impacted by a volatile currency environment,” CEO Paul McKenzie said on a call with analysts on Wednesday morning after the update was released to the ASX.

He said however that global demand for CSL’s products remains robust and the company’s research and development pipeline had “never been better”, with the first patient expected to take CSL’s treatment Hemgenix, the first FDA-approved gene therapy for haemophilia B, within the next few weeks.

Chief Financial Officer Joy Linton explained the currency ‘headwinds’ to analysts:

“In the second half of the year, so between December and May, the euro improved against the US dollar, but there wasn’t much movement in the yuan,” she said, noting they were the biggest components of the company’s currencies pairs.

“In the back part of the year, the two currencies that moved most were the pound to the US Dollar and the Australian dollar to the US dollar. Currencies have moved against us, and the greater the currency headwind in FY23, the lower our starting points growth point FY24,” Ms Linton told the call.

That lower starting point for 2024 is why analysts took a set against the company yesterday and will cut their forecasts.

But because analysts overestimated the company’s 2024 profits, the statement is now being construed as an earnings downgrade, but it was the company pointing out to the analysts that they are too high in their estimates and allowing them to adjust them downwards.

A retracement of those currency movements could see an ‘upgrade’ if it lasts into the back half of this year.

According to the Financial Review RBC reckons its a miss because the $US2.8 billion to $US3 billion estimate from the company is less than market consensus of $US3.5 billion and RBC’s forecast of $US3.8 billion.

How it can be a downgrade when RBC and others in the market were overly optimistic is a little strange.

That’s not to say there aren’t problems – like every other company cost pressures continue, especially for its plasma collection business. Cost pressures in this sector have been around since before the pandemic.

And like other pharma companies, there’s always the threat from cheaper generics – in this case competitors against its iron deficiency drug Ferinject.

It may turn out to be weaker in six months’ time, but at the moment the market is well above what the company sees as its earnings and it is actually forecasting a rise of 13% to 18% in 2024’s NPATA.

At the end of all this CSL shares lost 6.8% to close at $287.25 after touching a low of $283.03.