The CSL Limited (ASX: CSL) share price has underperformed the market since the initial COVID-19 sell-off in March 2020. After such a prolonged period of underperformance, Citi thinks the CSL share price could get back on track.
Strong earnings but plasma collections weigh on CSL share price
CSL announced a strong half-year report for the six months ended 31 December with group revenue up 16.9% on the prior corresponding period to US$5,739 million. A strong uplift in margins drove its 45% surge in net profit after tax to US$1,810 million.
At face value, the company's results appear very strong and above CSL's historic mid-teens growth. However, the company did acknowledge that the COVID-19 pandemic had tempered CSL Behring's performance whilst boosting the performance of Seqirus.
Plasma collections are an essential raw material used in the production of many of the company's therapies. Plasma collection centres and manufacturing facilities are classified as an essential service and remained operational during the pandemic. Despite being open, the company noted in its half-year results that "our plasma collections have been adversely affected during the pandemic". The company reported that collections volumes in December 2020 were ~80% of December 2019 volumes.
The company has taken several initiatives to improve plasma collections. This includes enhanced targeted marketing initiatives to increase collections, roll out of COVID-19 vaccine to increase social mobility and targeting an additional 12 new centres to be opened in 1H21.
Citi sees upside to the CSL share price
Citi believes that the current decline in plasma collections is likely to stabilise after the US's COVID vaccine rollout.
The US has also experienced a significant decline in new daily COVID cases. Its new daily cases surged from an average of 50,000 cases per day in October 2020 to a peak of more than 300,000 cases in January 2021. As of 8 March, the US reported 98,000 cases with a 7-day average of 64,700.
Citi left its CSL share price target unchanged at $310 with the assumption that plasma donations are back to normal by July 2020. CSL noted that as plasma volumes recover, the cost per litre of plasma reduces, leading to better margins.
