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Macquarie tips CSL shares to hit $500

Macquarie tips CSL shares to hit $500

Alex Gluyas

Updated Apr 9, 2024 – 2.38pm, first published at 2.14pm

CSL’s share price could almost double to $500 as earnings and margins at its massive blood plasma business rise over the next three years, Macquarie says.

The investment bank’s analysts, in a detailed 55-page note to clients, outlined their bullish view on the prospects of the country’s largest biotechnology group, suggesting CSL would come through a difficult period, during which its share price has suffered.

Shares in CSL, which works in blood plasma, vaccines and a number of other pharmaceutical fields, have declined almost 7 per cent in 12 months to $280.90, lagging the ASX 200’s 7.1 per cent increase over the same period.

That’s because margins at Behring, CSL’s blood plasma unit, have been below forecasts, growth at its recently acquired iron deficiency group Vifor has stalled, and the company has received poor results in the testing of its cholesterol medication CSL112.

In its note, Macquarie said the stock was trading well below its 10-year average price-to-earnings ratio. But it would return there underpinned by robust annual earnings growth of around 15 per cent, fuelled largely by its Behring division, they said. Macquarie expects that business to account for about 90 per cent of the company’s earnings increases over the next five years

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“We see this as both attractive and achievable,” they said of a $500 share price.

Some CSL shareholders are more sceptical. Hugh Dive, the chief investment officer of Atlas Funds Management, said he remained bullish about the company’s prospects, but Macquarie’s estimate looked “a bit suspect”, with earnings forecasts too optimistic.

“While over 10 per cent earnings growth per year may be achievable in the short term, it’s extremely difficult over a long period of time,” said Mr Dive, whose fund has owned CSL shares for six years.

“The law of large compounding numbers would make it very hard for CSL to grow their earning per share into a $500 share price without some degree of high sustained inflation, which would inflate all share prices, not just CSL’s.”

CSL said earlier this year that it expects to post double-digit earnings growth over the medium term.

Mr Dive said Microsoft was the only company to have grown earnings at a compound rate of 10 per cent per annum over a decade. That was in the years to 2002, with the introduction of Windows and associated applications, including Word and Excel.

But Scott Olsson, a portfolio manager at Firetrail Investments’ Australian high conviction fund, said CSL could grow its earnings at Macquarie’s projected rate.

He said that could be achieved as elevated costs from the COVID-19 pandemic began to normalise and CSL rolled out changes that would enable it to get more plasma from patients, as well as more product from each litre of plasma.

CSL is now one of the largest positions in Firetrail’s high conviction fund, which took a position in 2022.

“We think CSL presents a buying opportunity now because the market is more sceptical on management than it has been in the past, and the Vifor acquisition is turning out to not be a great buy so far, but that’s a very small part of the business,” said Mr Olsson. “I think the market is quite distracted on a few things.”