Is the CSL Limited (ASX: CSL) share price a buy right now? It has dropped around 18% since November 2020, though it went as low as $246 earlier in the month.
What has been going on with the CSL share price?
A key problem for CSL over the last year has been the difficulty in collecting plasma.
CSL said that COVID-19 is adversely impacting plasma collections. The collection volumes in December 2020 was only around 80% of what it collected in December 2019. The healthcare giant is also suffering from incurring additional collection costs to get that plasma. This is important because it's a key part of the business.
The healthcare giant is doing a number of initiatives to try to help the plasma division. It is doing more targeted marking initiatives to increase collections, it's adopting new technology and it's trying to "satisfy donors" with a positive experience.
CSL believes the roll out of COVID-19 vaccines will increase mobility and this could help collections.
The company has also reduced the plasma hold period from 60 days to 45 days.
CSL continues to rollout new collection centres which should boost the overall collection volume. It opened 17 new centres in the first half of FY21, with 12 expected to open in the second half. CSL boasted that it has the largest and most efficient centres in the industry.
The overall FY21 half-year result was largely strong. Revenue increased 15% in constant currency terms. Seqirus revenue jumped 38% thanks to significant demand for seasonal influenza vaccines and albumin sales went up 93% as China sales normalised thanks to a transition in its distribution.
The bottom line net profit after tax (NPAT) grew 44% in constant currency terms to $1.8 billion.
Where to now for the CSL share price?
CSL is expecting that the FY21 result will be heavily skewed to the first half. Around 80% of Seqirus sales in the first half and costs falling more evenly over the year – leading to a loss for the division in the second half.
Albumin sales are normalised after the transition, but plasma collections have constrained sales and elevated costs.
CSL continues to invest in research and development – it's expecting to spend around 10% to 11% of revenue, in line with guidance.
But CSL did suggest that multiple, large late stage R&D programs are underway providing the potential for new growth opportunities.
But FY22 immunoglobulin and albumin sales are reliant on current plasma collections and cycle times.
The company says that it's well placed to emerge strongly when the COVID-19 crisis recedes.
What do brokers think?
In recent weeks, some brokers have turned positive on the CSL share price potential after its decline.
For example, Morgans has a share price target for CSL of just over $300 and it thinks its shares look better value now. It also suggested that the Seqirus business could see higher demand for an extended period due to the demand to protect against the normal annual flu season.
Credit Suisse just changed its rating on CSL shares to a buy with a price target of $315. Whilst the broker is aware that CSL could face disruption in the plasma sector from competition with new products, there is still a strong worldwide demand for plasma and CSL could keep growing regardless of that.
On Credit Suisse's numbers, the CSL share price is valued at 37x FY21's estimated earnings.
