Pinned straw:
My 2c--- my last post on this thread, said csl needs to hold guidance, well that didint happen, and no real surprise, IMO. existing management has to be optimistic. There is a chance the new CEO clears the decks on top of what has been done so far.
The positive was GN admitting that competition, ie griffols, has improved their supply chain and products, in some cases passing CSL. IMO, this is the story that CSL has been reluctant to talk about until recently, which has been the competition resurgence in plasma. Grifols Q126 rev +15% pcp, CSL flat to lower?
And the Share losses are coming, as they usually do, in high-margin products. The big question, IMO, is when do the market share gains for Grifols stop? If you are buying CSL, you are implicitly saying soon.
The impairments, Seqirus and Vifor are all secondary to the IG question imo. Although not much good news there as well.
Once CSL stems share losses or Grifols reaches its capacity or natural share, or CSL can better defend itself, we should see CSL grow at the market rate and the SP recover/stabilse. When is that? How far do Grifolss eat into CSL? These unknowns are.
ill wait for evidence that we see market share losses being halted.
not held
CSL? Surely that can't be the same 'Wealth Winner' the Colemans have been exhorting us to "back up the truck" for on Ausbiz over the last year? (Unless maybe just to reverse over it...)
@Tom73 several of us here have commented consistently since the Vifor Acquisition that it looked like $CSL overpaid. If ever you needed confirmation, then today you have it with an undisclosed amount of today's $5bn writedown coming on top of the 1H FY26 writedown of $1,5bn.
At the time, I recalled commenting that the strategic fit for the acquisition would arise if $CSL's existing R&D capabilities in blood and blood products would be reinforced by or might reinforce Vifor's strengths in iron deficiency and kidney disease. However, it would appear that in the almost 4 years since the acquisition, that isn't materialising in the R&D product pipeline. Of course, it would reasonably take a longer period for such a product development synergy to become visible to investors, but the writedown today indicates to me that even management cannot see this (even given their deep visibility to what's going on in the lab), and the impacts of competition in the commercial Vifor portfolio are significantly outweighing the expected upsides, which also included - as stated at the time of the acquisition - commercial synergies/geographic reach and patient population overlap.
It is a reminder that M&A more often than not desctroys value.
As to the PPE writedown, this looks like it is recognition that the big capex spend on facilities particularly during the period 2020-2023 was over-sized for the demand which is materialising (Table below from my BA Claude)
Most notable here is the Lengnau situation: a facility built for recombinant haemophilia factors that was then leased to Thermo Fisher during COVID, suggesting demand projections didn't materialise as expected. Combined with the multi-site plasma fractionation build across Germany, Switzerland and Australia, CSL clearly overestimated how quickly post-COVID demand would scale to justify all this capacity, and today's impairments are the accounting reckoning for that.
In February this year, the penny dropped for me that I had made a significant error when I had bought $CSL between $197 and $227 in 2025, at the time believing it to be oversold. That we've now seen another big writedown on Vifor is not really a surprise to me, although I did not see the big PPE writedown coming, mainly because I dodn't have a good understanding of how the asset base relates to production capacity utilitisation across the business segments.
However, what I did clearly see in February in selling at around $152, was the risk of having an experienced $CSL former Executive coming in as Interim CEO to do a strategic review, and then a further near-term transition to the next CEO and - I maintain - a major Board changeout that today's announcement surely makes even more likely.
It is conceivable that at some point $CSL falls to a level where it represents real value, but I fear there may be further bumps in the road ahead.
Or, alternatively, have the highly experienced Gordon Naylor and Chair Brian McNamee done such a comprehensive clearout today that it clears the air for the future? For example, the $1.5bn writedown taken at 1H FY26 added to the $5bn today, has a material impact on future earnings, reducing D&A by anywhere from $250m to $400m p.a., by my guesstimate.
However, to focus on that non-cash accounting impact could be to miss the point. Does the writedown signal a structurally less rosey growth outlook for this business for the future?
This question brings me back to the other reason I exited - the lack lustre R&D pipeline. When investing in pharamaceuticals I am more than happy to place bets on a firm's potentially quite distant growth prospects. However, those bets MUST be founded the direct line of sight to molecules and trials that at least offer the prospect of blockbuster products even if the revenues are 5-10 years in the future. In $CSL's case, I haven't been able to form such a thesis commensurate with its scale. And until such time as I can, I won't be investing.
Disc: Not Held
Yes @raymon68 CSL has done some serious wealth destruction, but I would still say shareholders are responsible for at least half of it by overpaying. EPS has grown relatively steadily, and this may have addressed most of the over valuation except it ran head long into a period of poor ROCI due to some poor investments as @mikebrisy points out (Vifor & facilities).
Management laid it out in a straightforward way, the write downs (additional $5b) coming from a lazy balance sheet and poor investments. Analysists on the call asked if this is the last of it, would the new CEO find more and the answer was that this was it. Sounded convincing but I don’t think the market is going to assume all is done for a few more years.
The target for transformation was addressing excess organisation capacity (overhead and R&D) with a focus investing where risk adjusted cash flow exceeded the cost of capital and returning surplus to shareholders – the kind of focus that reflects Gordan’s CFO background.
CSL has been big and lazy in an increasingly competitive set of markets, the talk was about being leaner and meaner so we will have to see for ourselves what the walk looks like.
It’s in the execution, the “Actions Underway” seem solid and following a 90 day review the CEO is doubling down on them.
The 20% drop today on this review (including a downgrade for FY26) is to be expected. It will take several years for CSL to earn the right to be trusted by shareholders and only after strong execution.
If they achieve their FY26 NPATA target of $3.1b (cc) then the current price is around a 15x NPATA multiple. The company will be moving to reporting NPAT in place of NPATA which is a good move in my view for them to pay more respect to capex and cash use over the long term.
A view to buy, hold or sell will depend on your expectation that this turn around will turn and what if any undisclosed issues remain for future write-downs.
I will be continuing to hold what was a small position which is now much smaller on the basis that the economics of the business can be significantly improved. I don’t see high levels of top line growth ever occurring and share @mikebrisy’s lack of conviction that they will pull a big winner out any time soon. I have seen CSL more as a product company rather than an innovative R&D company for a long time, hence previous multiples never made any sense to me, but as a leading manufacturer of a product and leader in the market for that product it does have some value.
At the current level, I see value if they sweat their assets, but it may just be an attempt to pick up quarters in front of a steamroller – hence a low weighting.
Disc: I own RL
@Raseekingalpha ive written extensively about CSL over the last couple of years. so will keep it brief. The outcome we have here is dramatically falling returns on marginal investment dollars, with extensive debt used to keep ROE and eps up. so a few charts. Below are eps revisions for the last 3 years. so what analysts are usually wrong, but to me, this shows consistently failed expectations. needs to turn.
Below is one of my favourite charts that uses capital employed, ie ND as well. Notice the trend. now approaching the cost of capital. needs to improve. note CSL was net cash + in 2022 now has US$9b net debt. Pharma usually should have very little debt.
Next point, pharma is tricky, Novo Nordisk is the leader in the blockbuster drug of the decade GLP-1 (Ozempic), huge market, etc etc, trades at a PE of 10X. similar eps downgrades to CSL , not converting goals.
i dont really care what various fund managers do, or MS revisions. its simply a case of CSL needing to improve returns on capital, which have been disappointing for quite a while. The market gave them the benefit of the doubt for quite a while (and so did i) since, well they are CSL, but time is up.
first move, they need to hold guidance; secondly, consistently show better returns on capital.
Agreed @mikebrisy and @Solvetheriddle and I suspect the Board has got that message from their big investors already. After the last AGM I felt McNamees days were numbered and despite a wonderful history with the business, he didn't have what was needed now the tough times had arrived (especially with market communication).
So, not surprising and hopefully will be a good reset point, to read this in last week's announcement which is the first time it's been acknowledged by the company.
My guess is he steps down once the new CEO is in place (and possibly Naylor takes over as Chair???). And if they get his replacement right and a suitable CEO, I doubt CSL stays on 11 times earnings for long, when the market is on 21...
The chart below is shamelessly stolen from a Hotcopper post. But pretty much sums up my opinion.
5 years ago CSL was priced at a high multiple and the market was expecting rapid growth. It delivered consistent growth every year, but not as high as expectations.
Now CSL is priced at a considerably cheaper multiple. Cheaper even than many stodgy, slow-growing companies like the supermarkets. Very little growth is priced in
It's a very simple investment case IMO
