Biotech firm CSL is likely to be a beneficiary of the COVID-19 recovery despite its unsuccessful vaccine trials.
The firm, the largest on the ASX 200, was initially working on COVID-19 vaccine trials with the University of Queensland which were abandoned last year and the company had now switched to manufacturing 50 million doses of the AstraZeneca vaccine.
A larger part of the company’s work was in plasma therapy and this too had been hindered by fewer people donating blood during the pandemic which reduced the blood and plasma availability for research.
Nevertheless, Australian equities manager Malcolm Whitten from Tyndall Asset Management and Marcus Bogdan from Blackmore Capital were optimistic on the business.
“We think CSL is fair value, it was a safe haven in COVID-19 and a potential vaccine supplier. But on the re-opening, it underperformed, and that underperformance created opportunities to re-enter the stock,” said Whitten, who manages the Nikko AM Australian Share Income fund, which was acquired by Yarra Capital Management in April 2021 and would be rebranded as Tyndall AM in due course.
“While it was in lockdown, people were scared to go out and donate blood so the lack of blood availability constrained supply. But now the fading effects of the welfare payments in the US should mean supply increases; when there is high unemployment then blood donations increase.
“The firm’s last two results have beaten expectations and delivered wonderful profits, the business seems durable.”
Shares in CSL had fallen by 11% over one year to 30 April compared to returns of 30.7% by the ASX 200.
Bogdan, chief investment officer at Blackmore, said: “CSL has dramatically underperformed in the last 12 months and the primary driver of this was strong demand for its plasma therapy but a large shortage of supply of plasma in the US. It has been very difficult for people to donate and that is concerning, supply is well below demand. But people are getting immunised and things will start to normalise.
“We have been adding to CSL as we think the supply problems will be shortlived and will recover so we want to buy more when the price is at these low levels. Earnings have held up well and the vaccine business has never been in a stronger position but it is only a small part of the business.”
He also felt CSL would be the most likely candidate for the development of the mRNA vaccine technology in Australia. This was currently unavailable which was the causing delays in Australia obtaining the Pfizer vaccine.
“mRNA will be the potential new vaccine platform and CSL will be a leader in that going forward, there is big demand for that technology as we don’t have the ability to manufacture the Pfizer vaccine here. It would be logical for CSL to build that facility for mRNA,” Bogdan said.
Share price performance of CSL versus ASX 200 over one year to 30 April 2021
