CSL: Global plasma report

Transcription

1 AUSTRALIA AU Price (at 10:49, 11 Apr 2013 GMT) Outperform A$59.35 Volatility index Low 12-month target A$ month TSR % +9.6 Valuation A$ DCF (WACC 8.5%, beta 0.9, ERP 5.0%, RFR 5.0%, TGR 2.5%) GICS sector Pharmaceuticals, Biotechnology & Life Sciences Market cap A$m 29, day avg turnover A$m 76.1 Number shares on issue m Investment fundamentals Year end 30 Jun 2012A 2013E 2014E 2015E Revenue m 4, , , ,975.3 EBIT m 1, , , ,018.7 Reported profit m 1, , , ,632.9 Adjusted profit m 1, , , ,632.9 Gross cashflow m 1, , , ,879.4 CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x AU vs ASX 100, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, April 2013 (all figures in USD unless noted) : Global plasma report Structural advantage Event We examine global industry growth for CY12 and the relative performance of fractionators, and also discuss the sustainability of s outperformance. Impact Industry growth a very healthy 9.1%, again growing the fastest: Plasma revenues excluding recombinants grew by 9.1% in USD terms in CY12, ahead of last year s 7.3%. At a company level again outperformed with 11.3% cc growth outstripping all competitors except which was returning from a product recall. Over the past 2y has now averaged 11.6% cc top-line growth, materially higher than its two largest competitors, (7.1%) and (5.5%). Cost advantage a key driver of strong top-line growth: Because margins for the incremental unit of production are much lower than the first unit, expansion within the plasma industry generally carries margin pressure. The extent of pressure however is highly dependent on the cost base of a company, meaning that efficient manufacturers can grow their top-line faster than less-efficient manufacturers for the same level of margin pressure. Consistent with this, over the past 5 years has grown revenues faster than its competitors (12.8% pa) as well as expanded margins more (+4.9%). Structural advantage is self reinforcing, bodes well for future growth: As greater scale brings with it greater efficiencies, we believe s margin advantage will likely widen, and with it its ability to capture a greater share of growth than its competitors. We re therefore confident the company can maintain revenue growth in excess of the industry for some time yet something the equity market appears to doubt with consensus expecting growth to revert to 7.6% after next year. High China albumin share and sub-q exposure also boosting growth: Also boosting s top-line is its high share in the China albumin market which continues to grow in excess of 20%. This obviously helps albumin growth but more importantly underpins Ig growth for the company outside of China, due to the interdependency between the two products. Earnings and target price revision No change Price catalyst 12-month price target: A$63.85 based on a DCF methodology. 11 April 2013 Macquarie Securities (Australia) Limited Catalyst: Results of BAX-sponsored P3 Ig Alzheimer s trial May-June Action and recommendation Maintain Outperform: Accelerating market growth makes us increasingly positive on our 12 month industry outlook. We are also buoyed by s continuing outperformance, a trend we see continuing given the structural cost advantage we believe it has. Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website

2 : Global plasma report Global market growing at 9.1%, continuing to take share We have updated our global plasma market model which tracks revenues for 86% of the global commercial plasma fractionation industry. Fig 1 Market growth has accelerated to 9.1% Revenues (US$m) 12,000 10,000 8,000 20% 14% 3.1% 9.1% CAGR 7.3% 13.7 % 5.4 % 11.2 % 9.7 % 12.8 % 10.6 % 6,000 4,000 2,000 0 CY07 CY08 CY09 CY10 CY11 CY12 Note: Excludes recombinants & vaccines. Top 6 fractionators represent 86% of plasma market (excluding not-for-profit). s figures represent Behring and Albumin sales into China. figures exclude raw plasma sales in CY11. All figures in USD. Source: Company reports, Macquarie Research, April 2013 Ig and Albumin again the drivers of growth: Consistent themes from the company result commentary were (i) that demand and growth of Ig remains robust, and (ii) that albumin sales have accelerated, particularly into China. We have also noticed less frequent references to pricing pressure in Europe with a number of fractionators commenting about stabilisation of prices towards the end of the year. Industry continues to recover from a tough CY10: 2010 was an unexpectedly flat year (by this industry s standards), something we attribute to (i) Government austerity measures (especially Germany & Spain), and (ii) de-stocking post the Octagam recall in September impacted industry growth in With 2012 being the second consecutive year of high single-digit revenue growth, we are further reassured that events in 2010 were one-off in nature. continues to grow faster than market: As shown in figure 1 above, has grown faster than all other fractionators in the past 5 years except emerging fractionator. This trend remained in place in 2012, with only (who was returning from a product recall) posting higher growth: Fig 2 is growing considerably faster than peers 7.7% 6.4% 11.3% 12.0% Revenue growth (cc) CY12 CY11 6.0% 5.0% -9.0% 40.1% 2.3% 4.3% Note: and do not provide cc commentary so EUR figures used instead. represents Behring sales incl China. BAX represents BioScience sales. Source: Company statements, Macquarie Research April April

3 : Global plasma report to continue to grow faster than market has an efficiency advantage over its competitors: As depicted below, has a considerably higher EBITDA margin than most of its competitors. We have however excluded from our analysis as its margins are distorted by its large hospital consumables business. Fig 3 has a material cost advantage over its competitors CY12 EBITDA Margin¹ 31.9% 35.6% Kedrion 24.1% 14.9% 17.3% LFB -1.7% 1. All figures are for Group EBITDA margin. LFB and Kedrion are for CY11, as CY12 numbers are yet to be published. figure is for FY1H13. Source: Company reports, Macquarie Research, April 2013 Industry has inherent margin pressure: Because (i) fractionators only sell two products (Ig and albumin) in the incremental litre of raw plasma processed each year, (ii) these products generally grow faster than the other products, and (iii) COGS follows Ig and albumin growth (ie the fastest growing products), expansion in the plasma industry is generally associated with margin pressure 1. However, the extent of the pressure is dependent on the efficiency of a manufacturer: An inefficient manufacturer with an incremental cost of production of $280/L will make EBITDA of ~$20 2 for every expansionary unit at an incremental margin of 6%. Conversely an efficient manufacturer with an incremental cost of $220/L, will reap $80 EBITDA at an incremental margin of 27%. Hence efficient manufacturers can expand at a faster rate than less-efficient manufacturers for the same amount of margin pressure, and will tend to capture a disproportionate share of industry growth. Fig 4 s cost advantage allows it to grow faster and incur less margin pressure 5y average Revenue growth¹ Change in Margin ² 13.7% 4.9% 12.8% 2.9% 11.2% LFB -3.2% Kedrion 11.2% -4.3% 9.7% Kedrion -4.5% 5.4% -14.0% 1. All figures are in USD. Kedrion numbers are up until CY11, as CY12 numbers are yet to be published. 2. Figure represents absolute change in Group EBITDA margin. LFB figure is for 2011 vs 2010 and Kedrion is 2011 vs 2008 due to lack of available data. Source: Company reports, Macquarie Research, April In other words, if a fractionator wishes to grow Ig and Albumin (which account for ~50-60% of revenue) at the same rate as market growth, and these products continue to grow faster than infra-marginal products, they will experience margin pressure. We estimate Ig and albumin are currently growing at 2-4% faster than infra-marginal products 2 Assumes Ig yield of 4g/L & price of $60, and albumin yield of 25g/L and price of $2.50/g. 11 April

4 : Global plasma report Structural advantage is self reinforcing, bodes well for future growth: As greater scale brings with it greater efficiencies, we believe s margin advantage will likely widen, and with it its ability to capture a greater share of growth than its competitors. This will then further expand its efficiency advantage, and so on and so forth. As such we are therefore confident the company can maintain revenue growth in excess of the industry for some time yet something the market appears to doubt with consensus sales growth (Bloomberg) decreasing to 7.6% after next year. China exposure and sub-q will also continue to boost growth has the highest exposure to fast-growing China albumin market: China is now the largest consumer of albumin globally with a market more than twice the size of the US, and continues to grow rapidly., largely due to entering the Chinese market before its competitors, has the largest share of the international fractionators something we don t see changing given the difficulties in distributing the product in China. This obviously bodes well for s albumin sales growth, but more importantly it underpins Ig growth (which accounts for ~3x more revenues than albumin) outside of China, due to the inter-dependency of production of the two products 3. Fig 5 has highest share in fast-growing China albumin market Albumin Market Size ($USm) $1,170 Albumin Market Growth 20% 22% China Albumin Market Share $424 57% 17% 10% 9% 8% Domestic USA China CAGR Source: MRB, China Biologics annual accounts, CMS pricing schedule, Macquarie Research, April 2013 CY11 has highest exposure to fast growing sub-q segment: Sub-Q Ig, which is administered under the skin at home, is a fast growing segment of the Ig market, particularly in the US, where we estimate it accounts for ~10% of the market and is growing at 20-25% pa. currently has the only high-concentration product (Hizentra), which allows users to infuse less-frequently and hence has a very high share in this fast growing market. is developing a competing high dose product, however as it has had some setbacks in the regulatory process, we see continuing to dominate this segment, at least for the remainder of this year. 3 Albumin and Ig are the only last-litre products so fractionators will only generally increase plasma production if they believe they can sell both products. 11 April

5 : Global plasma report Fig 6 ( AU) 30 Jun 1H/11A 2H/11A 1H/12A 2H/12A 1H/13A 2H/13E 2011A 2012A 2013E 2014E Valuation NPV $ Price Target $ Profit & Loss 1H/11A 2H/11A 1H/12A 2H/12A 1H/13A 2H/13E 2011A 2012A 2013E 2014E Sales Behring $USm Other Human Health $USm Sales Revenue $USm growth % 0.3% 9.4% 17.9% 7.8% 6.8% 10.5% 12.6% 8.6% 8.8% Interest Income $USm Intellectual Property/Licensing $USm Other $USm Other Revenue $USm Total Revenue $USm Revenue growth 6.1% 7.0% 10.9% 11.9% 6.4% 9.9% 6.5% 11.4% 8.1% 8.4% EBITDA Behring $USm Other Human Health $USm Intellectual Property/Licensing $USm Other $USm EBITDA $USm EBITDA growth -0.8% 0.6% 0.2% 19.9% 22.7% 24.6% -0.2% 9.2% 23.7% 12.8% Ebitda margin % 36.5% 28.5% 31.0% 31.7% 35.6% 35.7% 32.3% 31.3% 35.7% 37.0% - Depreciation $USm % of sales 3.4% 3.1% 3.1% 3.4% 3.3% 3.4% 3.2% 3.2% 3.4% 3.5% - Amortisation EBIT $USm EBIT growth -1.6% -4.4% -0.3% 22.4% 23.9% 26.5% -2.9% 9.9% 25.2% 13.1% Ebit margin % 32.3% 24.4% 27.3% 27.7% 31.7% 31.7% 28.2% 27.5% 31.7% 32.9% - Net Interest Expense $USm Pretax Profit $USm Tax Expense $USm effective tax rate % 22.7% 19.7% 20.4% 18.3% 19.5% 19.5% 21.3% 19.4% 19.5% 19.5% Net Profit $USm Net ISI $USm Net Extraordinaries $USm Minority Interests $USm Reported Profit $USm Adjusted Profit $USm Gross Cashflow $USm % 13.2% EPS (adj ISI & g/w / diluted incl NIA) EPS adj Growth % 14.2% -5.8% 5.1% 29.4% 29.4% 28.2% 4.0% 16.3% 28.8% 16.3% DPS EV/Sales EV/EBIT EV/EBITDA PE (adj abn & g/w fully diluted) x PGCFPS x Yield % 0.6% 0.8% 0.6% 0.9% 0.9% 1.0% 1.4% 1.5% 1.8% 2.2% Franking % 0.0% 4.4% 0.0% 0.0% 0.0% 0.0% Ord Fully Paid (Weighted Avg) m EFPOWA m Cashflow Analysis 1H/11A 2H/11A 1H/12A 2H/12A 1H/13A 2H/13E 2011A 2012A 2013E 2014E EBITDA $USm Inc. in Working capital $USm Net Interest Paid $USm Tax Paid $USm Other $USm Net Cash in Op Activities $USm Capex $USm Acquisitions $USm Asset Sales $USm Other $USm Net cash in investing $USm Dividends Paid (before DRP) $USm Equity Movements (inc. DRP) $USm Debt Movements $USm Other $USm Net cash in financing $USm Opening Cash balance $USm Net Cash movement $USm Net Exchange Rate Differences $USm Cash Balance + Cash $USm Performance Analysis Balance Sheet 2011A 2012A 2013E 2014E Cash FY13 EBIT breakdown Behring 90% OHH 3% IPL 7% FY13 Revenue breakdown OHH 19% IPL 3% Behring 78% Receivables Inventory Current Assets Fixed Assets Intangibles Other Total Assets total asset growth 16.0% 8.4% 0.4% 15.0% Creditors Other Current Liabilities Long Term Debt Other Liabilities Net Assets Shareholders Funds Minority Interests Total Shareholder Funds Ratios 2011A 2012A 2013E 2014E Working Capital D/(D+E) (%) -1.8% 2.0% 5.7% 0.5% Return on Equity (%) 23.4% 29.5% 35.7% 35.3% Return on Assets (%) 21.2% 21.5% 26.8% 26.3% NTA (est) ($) $5.41 $5.02 $5.35 $6.63 Source: Company data, Macquarie Research, April April

6 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions : Global plasma report All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 March 2013 AU/NZ Asia RSA USA CA EUR Outperform 45.12% 53.24% 50.00% 40.70% 62.98% 43.30% (for US coverage by MCUSA, 10.55% of stocks followed are investment banking clients) Neutral 41.52% 28.01% 41.43% 55.01% 32.60% 34.10% (for US coverage by MCUSA, 9.05% of stocks followed are investment banking clients) Underperform 13.36% 18.74% 8.57% 4.29% 4.42% 22.60% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients) Company Specific Disclosures: Macquarie Bank Limited makes a market in the securities in respect of Limited. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at Analyst Certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. 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