CSL is undervalued in High Tax Scenario

CSL Limited: Fair Value Assessment Amidst Evolving US Tariff Scenarios

Executive Summary

This report provides an assessment of the fair value of CSL Limited (CSL) under various potential United States (US) tariff scenarios. CSL, a global biotechnology leader with significant operations in plasma therapies (CSL Behring), influenza vaccines (CSL Seqirus), and iron/nephrology treatments (CSL Vifor), faces potential impacts from evolving US trade policies. While pharmaceuticals are currently exempt from the latest round of broad US tariffs announced in April 2025 1, the dynamic geopolitical environment and previous statements suggest this exemption may not be permanent.2

Our analysis utilizes a Discounted Cash Flow (DCF) methodology to estimate CSL's fair value under three distinct scenarios: No Tariff (baseline, assuming current exemptions hold), Low Tariff (modest future tariffs), and High Tariff (significant future tariffs). The baseline valuation reflects CSL's strong underlying business fundamentals, driven by robust growth in its core Immunoglobulin (Ig) franchise, ongoing gross margin recovery in the CSL Behring segment, and contributions from Seqirus and Vifor, albeit with some near-term headwinds for the latter two.4

The introduction of tariffs, should they occur, would primarily impact CSL through increased costs on imported raw materials (like plasma) or exported finished goods, potentially affecting profitability and cash flows. The Low and High Tariff scenarios quantify these potential impacts based on illustrative assumptions regarding tariff rates and scope. Sensitivity analysis highlights the valuation's dependence on key assumptions, including the Weighted Average Cost of Capital (WACC), terminal growth rate, and the magnitude of any potential tariff impact. The resulting fair value range across scenarios is compared against CSL's current market valuation and consensus analyst price targets to provide context for investment considerations. Key risks include the potential implementation and severity of tariffs, execution challenges in achieving margin recovery targets, competitive pressures, R&D pipeline outcomes, and broader regulatory and macroeconomic factors.

CSL Limited: Business Overview and Financial Performance

CSL Limited stands as a global biotechnology powerhouse, developing and delivering innovative medicines for serious and life-threatening conditions and protecting community health worldwide.4 With a history dating back to 1916 and operations reaching patients in over 100 countries 4, CSL employs over 32,000 people globally.9 The company operates through three primary business units: CSL Behring, CSL Seqirus, and CSL Vifor.

(A) Business Segments

• CSL Behring: This is CSL's largest segment and the global leader (#1) in plasma therapies within an estimated US$30 billion industry.11 It focuses on researching, developing, manufacturing, and distributing plasma-derived and recombinant protein-based therapies.10 Key therapeutic areas include immunology (immunoglobulins), haematology (haemophilia treatments), cardiovascular and metabolic conditions, respiratory diseases, and thrombosis. A critical component is CSL Plasma, one of the world's largest and most sophisticated plasma collection networks, operating over 349 centres across the United States, Europe (Germany, Hungary), and China.4 Plasma collected is used by CSL Behring to manufacture its life-saving therapies.10
• CSL Seqirus: This unit positions CSL as the global #2 player in the influenza vaccine market, an industry valued at approximately US$6 billion.11 Seqirus produces and distributes influenza vaccines (seasonal and pandemic preparedness), antivenoms, and other in-licensed biotherapeutic products aimed at preventing serious human medical conditions.9 It leverages both egg-based and cell-based manufacturing technologies.12
• CSL Vifor: Acquired by CSL in August 2022 8, CSL Vifor expands CSL's portfolio into treatments for iron deficiency, nephrology (kidney disease), and cardio-renal therapies.9 This acquisition added complementary therapeutic areas and strengthened CSL's global presence, particularly in Europe.8

(B) Product Portfolio Analysis

CSL boasts a diverse and robust product portfolio across its segments.

• CSL Behring Key Products: The Immunoglobulin (Ig) portfolio is the largest franchise, featuring leading products like PRIVIGEN® (Intravenous Ig - IVIg) and HIZENTRA® (Subcutaneous Ig - SCIg).5 Recent performance has been exceptionally strong, with Ig sales up 20% (Constant Currency - CC) in FY24 7 and 15% (CC) in H1 FY25.5 This growth is driven by significant patient demand across core indications (Primary and Secondary Immunodeficiency, CIDP) and geographies.5 HIZENTRA® remains the clear market leader in SCIg, boosted by the uptake of its 50ml pre-filled syringe.5 Albumin sales have also been robust, growing 12% (CC) in FY24 17 and 9% (CC) in H1 FY25 5, with particularly strong demand noted in China.5 The Haemophilia franchise, up 10% (CC) in FY24 17 and 11% (CC) in H1 FY25 5, is led by IDELVION® (long-acting factor IX), which maintains market leadership 5, and the accelerating uptake of HEMGENIX®, the first gene therapy for haemophilia B.5 Specialty products saw 6% (CC) growth in FY24 17, driven by HAEGARDA® (for HAE) 17, though H1 FY25 sales declined 5% (CC) 5 primarily due to a 20% drop in KCENTRA® sales following the loss of a substantial US contract.5
• CSL Seqirus Key Products: The portfolio is centered around differentiated influenza vaccines, notably FLUAD® (adjuvanted vaccine for the elderly) and FLUCELVAX® (cell-culture based vaccine).5 FY24 saw revenue growth of 4% (CC) 4, driven by FLUAD® surpassing US$1 billion in sales for the first time, outperforming the market despite a challenging season.4 However, H1 FY25 revenue declined 9% (CC) 5, significantly impacted by low immunization rates, particularly in the US, and competitive pressures.5 Pandemic preparedness contracts, such as those secured for H5 avian flu, are expected to provide some offset, with revenue recognition extending beyond H1 FY25.5
• CSL Vifor Key Products: Key products include iron therapies like FERINJECT®/INJECTAFER® and nephrology treatments such as MIRCERA®, VELPHORO®, TAVNEOS®, and FILSPARI®.5 Since acquisition, the business has shown solid underlying growth, contributing US$1,989 million in revenue for ~11 months in FY23 8 and US$1,079 million in H1 FY25 (up 6% CC).13 Iron sales grew 3% (CC) in H1 FY25 5, driven by volume growth in Europe despite generic competition.5 Nephrology is showing strong momentum, particularly TAVNEOS® across markets and the successful launch of FILSPARI® in key European countries.5
• R&D Pipeline: CSL maintains a significant commitment to innovation, historically investing around 10-11% of revenue in R&D 11, although FY25 guidance is ~10%.12 R&D expenses were lower in H1 FY25 due to the cessation of the CSL112 cardiovascular program.12 Key late-stage programs include Garadacimab (ANDEMBRY®) for HAE, which has received approvals/positive recommendations in several jurisdictions.5 CSL also has a partnership with Arcturus Therapeutics for next-generation mRNA vaccine technology.14

(C) Geographic Footprint and Manufacturing Network

CSL operates a truly global business, serving patients in over 100 countries.4 While specific geographic revenue breakdowns are not consistently disclosed in recent reports, performance commentary highlights the importance of key markets including the US, Europe (Germany, Switzerland, UK), China, Australia, and Japan.5

The company's manufacturing network is extensive, with major facilities located in:

• Australia (Broadmeadows - plasma fractionation, R&D; Tullamarine - new cell-based vaccine facility under construction) 4
• Germany (Marburg - plasma fractionation, R&D) 4
• Switzerland (Bern - manufacturing, R&D; Lengnau - biotech facility leased to Thermo Fisher; St Gallen - R&D) 4
• United Kingdom (manufacturing, R&D) 4
• United States (Kankakee, Holly Springs - manufacturing; R&D presence) 4
• China (plasma collection, R&D) 4

Recent investments include completed base fractionation capacity expansions at Broadmeadows and Marburg 4 and the ongoing construction of the US$530 million cell-based vaccine facility in Tullamarine, expected to be operational in 2026.8

Plasma collection, the critical input for CSL Behring, occurs primarily through CSL Plasma centres in the US, Europe (Germany, Hungary), and China.4 Post-COVID-19 pandemic disruptions, plasma collection volumes reached record levels.14 CSL is actively implementing initiatives to enhance efficiency and donor yield, including the advanced rollout of RIKA plasmapheresis devices in the US (on track for completion by June 2025), implementation of the iNomi individualized nomogram (delivering ~10% average yield increase), and efforts to reduce the cost per litre (CPL) of plasma collected.4

This extensive global operational structure, involving sourcing key raw materials like plasma primarily from the US and Europe 4, manufacturing across continents 4, and selling into over 100 countries 4, inherently creates multiple points of interaction with international trade flows. Consequently, CSL's supply chain is potentially exposed to geographically targeted tariffs, whether impacting the cost of imported plasma or other materials into its manufacturing hubs, or the cost of its exported finished pharmaceutical products entering key markets like the US. The company's presence in China, both for plasma collection and sales 4, adds a specific dimension to this exposure, given the heightened trade tensions between the US and China.3

(D) Recent Financial Performance Review (FY23, FY24, H1 FY25)

CSL has demonstrated resilient financial performance, navigating post-pandemic recovery and integrating the Vifor acquisition.

• FY2023 (ended June 30, 2023): Revenue reached US$13.3 billion 21, with NPATA attributable to shareholders at US$2.61 billion.8 Growth was driven by strong recovery in CSL Behring (Revenue US$9.3bn, +12% CC), solid performance from CSL Seqirus (Revenue US$2.0bn, +9% CC), and the initial contribution from CSL Vifor (Revenue US$2.0bn for ~11 months).8
• FY2024 (ended June 30, 2024): CSL reported strong results, exceeding forecasts.6 Revenue grew to US$14.8 billion, up 11% (CC).4 NPATA rose 15% (CC) to US$3.0 billion (reported US$2.91bn 4).7 Growth was again led by CSL Behring (Revenue US$10.6bn, +14% CC), particularly the Ig franchise (+20% CC).7 CSL Seqirus revenue grew 4% (CC) to US$2.1 billion, outperforming a challenging flu market.4 CSL Vifor revenue was US$2.1 billion.17
• H1 FY2025 (ended Dec 31, 2024): CSL delivered a solid first half, with revenue reaching US$8.48 billion, up 5% (CC).5 NPATA attributable to shareholders was US$2.07 billion, up 5% (CC) (reported +3%).5 CSL Behring continued its strong trajectory (Revenue US$5.7bn, +10% CC), driven by Ig (+15% CC).5 CSL Seqirus faced headwinds (Revenue US$1.7bn, -9% CC) due to low US flu vaccination rates.5 CSL Vifor showed growth (Revenue US$1.1bn, +6% CC).13

Table 1: CSL Key Financial Summary (Consolidated, US$M)

Metric

FY22 (Reported)

FY23 (Reported)

FY24 (Reported)

H1 FY25 (Reported)

H1 FY25 (CC Growth %)

Total Revenue

10,562 21

13,310 21

14,800 17

8,483 5

5% 5

Gross Profit

5,697^

6,820^

7,840^

4,704 12

5% 12

GP Margin %

53.9%^

51.2%^

53.0%^

55.5% 12

55.8% (CC) 12

R&D Expense

1,016^

1,237^

1,213^

646 12

-4% 12

Operating Income (EBIT)

2,860^

3,584^

4,445^

3,238~ 5

5%~ 5

NPAT (Shareholders)

2,255 22

2,194 21

2,610 7

2,007 5

7% 5

NPATA (Shareholders)

2,236^

2,610 8

2,907 23

2,074 5

5% 5

Notes: ^Calculated/derived from multiple sources or prior reports where not explicitly stated in provided snippets for the specific period/format. EBIT reported here is based on NPATA reconciliation/segment data and may differ from statutory operating profit. ~H1 FY25 EBIT figure is EBITDA from.5 Financial data can vary slightly depending on source and reporting adjustments (e.g., NPAT/NPATA figures in 5 text vs. table).

A key focus for CSL is the recovery of CSL Behring's gross margin, which was impacted during the pandemic. Progress is evident, with the margin improving by 120 bps (CC) in FY24 7 and a further 170 bps (CC) in H1 FY25.12 This recovery is attributed to plasma initiatives (RIKA deployment, yield improvements, CPL reduction) and increased plasma supply enabling higher throughput.4 CSL targets a return to pre-COVID margins within 3-5 years.24 CSL Seqirus margins remained stable in FY24.17 The integration of CSL Vifor is progressing well, with synergies realized ahead of expectation (>$100M total achieved 7, $75M run-rate cited earlier 24), although the segment faces near-term challenges from generic iron competition in Europe and loss of exclusivity.4

The successful restoration of CSL Behring's gross margin is fundamental to the company achieving its medium-term guidance of double-digit earnings growth.6 Because CSL Behring is the largest contributor to group profitability 17, and given the expectations for relatively flat near-term growth from CSL Seqirus and CSL Vifor 23, the path to overall double-digit NPATA expansion relies heavily on Behring's performance. This performance, in turn, is significantly dependent on realizing the benefits of plasma collection efficiencies (through RIKA deployment, cost per liter reductions) and leveraging increased plasma volumes.4 Therefore, effective operational execution within the plasma supply chain represents a critical factor influencing CSL's valuation outlook.

Table 2: CSL Revenue Breakdown (Segment & Key Products, FY24 & H1 FY25, US$M)

Segment / Product Line

FY24 Revenue

FY24 CC Growth %

H1 FY25 Revenue

H1 FY25 CC Growth %

Key Geographic Notes (Recent Performance)

CSL Behring

10,608

+14%

5,743

+10%

Strong growth across all geographies for Ig.5 Robust Albumin demand in China.5

Immunoglobulins (Ig)

5,666

+20%

3,174

+15%

PRIVIGEN/INTRAGAM +21% (FY24), +15% (H1FY25); HIZENTRA +19% (FY24), +16% (H1FY25).17

Albumin

1,209

+12%

672

+9%

Solid growth all key geographies (FY24).17 Strong China growth (H1FY25).5

Haemophilia

1,313

+10%

731

+11%

IDELVION +10% (FY24), +6% (H1FY25); HEMGENIX uptake accelerating.5

Specialty Products

1,940

+6%

921

-5%

HAEGARDA +12% (FY24), +1% (H1FY25); KCENTRA +5% (FY24), -20% (H1FY25 due to US contract loss).5

CSL Seqirus

2,128

+4%

1,661

-9%

FY24 outperformed market.7 H1FY25 impacted by low US immunization rates; EU stabilizing.5

Adjuvanted Egg (FLUAD)

1,040

+14%

829

-17%

Key growth driver in FY24.7 Significant decline H1FY25.5

Cell Culture (FLUCELVAX)

535

-11%

468

-12%

Decline in H1FY25.5

CSL Vifor

2,064

nc^

1,079

+6%

Iron volume growth in Europe despite generics.5 Strong Nephrology uptake (TAVNEOS, FILSPARI).5

Iron

1,018

--

527

+3%

EU FERINJECT volume +6% (H1FY25).13 US INJECTAFER +3% (H1FY25).13

Nephrology (Non-Dialysis)

--

--

127

+40%

TAVNEOS strong growth EU; FILSPARI successful launch GER/AUT/SUI.5

CSL Group Total

14,800

+11%

8,483

+5%

Notes: nc = not comparable due to timing of Vifor acquisition. Geographic revenue breakdown for the Group is not explicitly provided in the referenced snippets in a consistent format for these periods.

(E) Competitive Landscape and Market Position

CSL holds leading positions in its core markets. In plasma-derived therapies, it commands a significant share, estimated at ~38% among the top four global players (including Takeda, Grifols) in 2023.23 Its CSL Behring segment benefits from a broad portfolio and integrated plasma supply chain. In influenza vaccines, CSL Seqirus is the second-largest global player, competing with Sanofi and GSK 23, leveraging a portfolio of differentiated products like FLUAD® and FLUCELVAX®.7 The CSL Vifor acquisition positions CSL in the iron deficiency and nephrology markets, facing competition including generic entrants for its iron products 5 but also holding strong positions with products like MIRCERA®.13 The haemophilia market remains competitive, though IDELVION® maintains leadership and HEMGENIX® offers a novel gene therapy approach.5

The Evolving Tariff Landscape and Biopharmaceutical Sector Impact

Recent shifts in US trade policy have introduced uncertainty for global industries, including the biopharmaceutical sector. Understanding the current landscape and potential future risks is crucial for assessing CSL's valuation.

(A) Overview of Current US Trade Policy and Potential Tariff Mechanisms

In early April 2025, the US administration announced significant changes to its tariff structure.2 Key elements include:

• A universal baseline tariff of 10% on imports from all countries, effective April 5, 2025.2
• Higher "reciprocal" tariffs imposed on specific key trading partners, effective April 9, 2025. These rates were calculated based on a formula considering the partner's trade surplus with the US and total exports, then halved.2 Examples include:

• China: Initial rate 34%, subsequently increased to 104% in response to retaliation, with a further increase to 125% proposed.2
• Japan: 24%.2
• European Union (EU): 20%.2
• Vietnam: 46%.2

• A temporary 90-day suspension of the universal baseline tariff for countries not subject to the higher reciprocal rates.3
• Exemptions for goods compliant with the United States-Mexico-Canada Agreement (USMCA).2

These actions have triggered retaliatory measures, with China announcing increased tariffs on US goods 3 and the EU planning countermeasures, including the potential reimposition of previous retaliatory tariffs and new measures.2 The situation remains volatile, characterized by measures being announced, implemented, and sometimes suspended on short notice.26

(B) Specific Risks for the Biopharmaceutical Industry

• Current Exemption Status: Critically, based on the exemptions listed in the April 2025 executive order, pharmaceutical products appear to be exempt from these newly announced baseline and reciprocal tariffs at this time.1 CSL itself acknowledged this apparent exemption in its response to the announcement.1
• Potential for Future Tariffs: Despite the current exemption, significant risk remains that pharmaceuticals could be targeted in the future. The US President has previously indicated the drug industry would face tariffs 2, and analysts caution that other levies could still be applied.2 Furthermore, the administration is reportedly considering separate tariffs specifically on pharmaceuticals.3 While the World Trade Organization's (WTO) Pharma Agreement historically provided for duty-free trade in most pharmaceutical products among major signatories (including the US, EU, China, Japan, Switzerland) 26, recent unilateral tariff actions challenge these established norms. An imposition of tariffs on pharmaceuticals, potentially at rates like 25% as previously mentioned 26, would mark a significant departure from historical practice.
• Supply Chain Vulnerabilities: The biopharmaceutical industry's globalized nature makes it particularly susceptible to trade disruptions. The US relies heavily on imports:

• China: Supplies nearly 30% of raw ingredients/APIs for major drugs, and is a key source for generics, including critical medicines for cancer, heart conditions, and antibiotics like amoxicillin.27
• India: Another significant source of APIs.2
• Europe: A major hub for manufacturing complex biologic drugs.2 Tariffs imposed on goods from these regions could substantially increase the cost of Active Pharmaceutical Ingredients (APIs), precursors, finished drugs, and potentially manufacturing equipment or supplies.26

• Potential Impacts of Pharmaceutical Tariffs: Should tariffs be applied to the sector, the consequences could be far-reaching:

• Increased Costs and Prices: Tariffs function as a tax on imported goods, paid by the importer.26 Given the low operating margins of distributors (around 0.3%) 27 and the high cost of drug development, these costs are likely to be passed down the supply chain, ultimately reaching payers and patients.27 This could exacerbate existing drug affordability challenges in the US.27
• Drug Shortages: Increased costs and supply chain disruptions could worsen existing drug shortages or trigger new ones, particularly for lower-margin generic drugs heavily reliant on imports.27 Access to critical medications could be compromised.27
• R&D Investment: Higher manufacturing and operational costs resulting from tariffs could force companies, especially smaller biotechs heavily reliant on imported APIs, to reduce investment in research and development, potentially delaying innovation and the introduction of new therapies.27 Biopharma R&D returns have already been under pressure.29
• Manufacturing and Supply Chain Adjustments: Tariffs could accelerate trends towards supply chain diversification and onshoring.28 Companies might explore relocating production or sourcing from non-tariffed regions (e.g., shifting from China to India or Europe, or increasing US manufacturing).27 However, building new pharmaceutical facilities, especially for biologics, is extremely expensive (US$200M-$500M+ vs $30M-$100M for small molecules 30) and time-consuming (5-10 years to build and meet regulatory standards).27
• M&A and Transfer Pricing: Tariff uncertainty complicates M&A activity by making it difficult to forecast target company profitability and thus determine appropriate valuations.26 Companies also face challenges in allocating tariff-related costs across entities in compliance with transfer pricing rules and avoiding double taxation.26

(C) US-China Biosecurity Tensions (BIOSECURE Act Context)

Adding another layer of complexity to the US-China trade dynamic in the biopharmaceutical sector is the proposed BIOSECURE Act. This legislation, separate from the broad tariff actions but reflecting similar underlying national security concerns, specifically targets certain Chinese biotechnology companies.

• Mechanism: The Act (H.R. 8333/S. 3558), which passed the US House of Representatives in September 2024 and awaits Senate consideration 31, aims to prohibit US federal agencies from procuring biotechnology equipment or services from, or contracting with, designated "biotechnology companies of concern".33 It also restricts federal loan and grant recipients from using funds to engage with these companies.32 The bill explicitly names WuXi AppTec, WuXi Biologics, BGI Group, MGI, and Complete Genomics, citing concerns over alleged links to the Chinese military and the potential transfer of sensitive US genetic data to foreign adversaries.31 The deadline for dissociation is set for 2032.31
• Potential Impact: Given the significant reliance of the US biopharma industry on Chinese contract development and manufacturing organizations (CDMOs) like WuXi AppTec (a 2024 survey found 79% of responding US biotechs used at least one Chinese contractor 31), the Act could cause substantial market disruption, including R&D delays, drug shortages, and increased costs as companies seek alternative providers.33 There is also a risk of retaliatory measures from China.33
• Current Status and Effects: While the Act's final passage and form remain uncertain (it was notably omitted from a key defense spending bill amendment list in mid-2024 34), it has already impacted the industry. Companies are reportedly re-evaluating supply chains and exploring alternatives in India, Europe, or North America.31 WuXi AppTec has cited the proposed legislation as a factor in revenue declines for its Advanced Therapies unit and is reassessing that unit's future.31 Confidence in working with Chinese firms has been undermined 32, and WuXi has actively defended itself against the allegations.37

Although the BIOSECURE Act and the broader tariff discussions represent distinct policy tools – one targeting specific companies and federal funding streams, the other applying duties on trade flows – they are interconnected manifestations of the increasing geopolitical and economic friction between the US and China within the sensitive biotechnology sector.3 Both policies contribute significantly to supply chain uncertainty for global biopharma companies. They create pressure to diversify manufacturing and sourcing away from China, potentially increasing operational complexity and costs. For a company like CSL, with existing operations and sales in China 4 and reliance on a global network of suppliers and potentially CDMOs, the combined effect is a heightened risk environment. The political momentum behind the BIOSECURE Act underscores a willingness in the US to restrict ties with China in this sector, which could increase the likelihood of future tariffs or other restrictive measures being applied, even if pharmaceuticals are currently exempt.

(D) Scenario Definitions: Assumptions for Tariff Impacts on CSL

To evaluate the potential impact of these trade policy risks on CSL's valuation, three scenarios are defined:

• Scenario 1: No Tariff (Baseline): This scenario assumes the current exemption for pharmaceutical products from the new broad US tariffs remains in place indefinitely. There is no direct financial impact on CSL's revenues or costs from these specific tariff measures. Financial projections are based on consensus analyst estimates and company guidance, reflecting the current operating environment and CSL's fundamental outlook.1 This represents the status quo and the most probable near-term outcome given current stated policy.1
• Scenario 2: Low Tariff: This scenario models the potential impact of a future policy shift where modest tariffs are applied to the pharmaceutical sector, affecting CSL. The specific illustrative assumption is a 5% tariff imposed on 20% of CSL's US-related trade flows. This could manifest as increased Cost of Goods Sold (COGS) due to tariffs on imported plasma/materials from non-US sources (e.g., Europe) into US manufacturing, or tariffs on finished goods exported from CSL's non-US facilities (e.g., Australia, Switzerland, Germany) into the US market, potentially requiring price adjustments or margin absorption impacting revenue/profitability. This scenario reflects a partial inclusion of pharma in future tariff regimes.
• Scenario 3: High Tariff: This scenario models a more significant future tariff imposition. The specific illustrative assumption is a 15% tariff applied to 40% of CSL's US-related trade flows (imports and exports involving key non-US hubs). This higher rate aligns more closely with tariffs applied to other sectors or countries 2 and reflects a scenario where the pharmaceutical industry loses its protected status more substantially, leading to broader cost increases and potentially impacting demand or pricing power in the US market.

Table 3: Tariff Scenario Assumptions (Illustrative)

Scenario

Tariff Rate Applied

% of US-Related Trade Flows Affected

Assumed Impact Mechanism

Rationale

No Tariff

0%

0%

No direct impact from new broad US tariffs.

Reflects current stated policy and pharmaceutical exemption.1

Low Tariff

5%

20%

Increase in COGS and/or reduction in effective Revenue due to tariffs on imports/exports.

Models potential future inclusion of pharma with modest rates/scope.

High Tariff

15%

40%

Larger increase in COGS and/or reduction in effective Revenue; potential demand impact.

Models significant loss of pharma exemption, aligning closer to rates on other sectors/countries.2

Note: These assumptions are illustrative and designed to quantify potential impacts. The actual mechanism, rate, and scope of any future tariffs are uncertain.

CSL Fair Value Estimation

The fair value of CSL is estimated using a Discounted Cash Flow (DCF) approach, which values the company based on the present value of its expected future free cash flows. This methodology is appropriate for a company like CSL with a strong market position and relatively predictable, albeit growing, long-term cash flow generation potential. Free Cash Flow to Firm (FCFF) is projected and discounted using the Weighted Average Cost of Capital (WACC).

(A) Valuation Methodology: Discounted Cash Flow (DCF) Approach

The DCF model involves projecting CSL's FCFF over an explicit forecast period (10 years) and then calculating a terminal value to represent cash flows beyond that period. These future cash flows are discounted back to their present value using the WACC. The sum of the present values of the explicit period cash flows and the terminal value yields the Enterprise Value (EV). Adjusting the EV for net debt and minority interests provides the Equity Value, which, when divided by the number of shares outstanding, results in the estimated fair value per share. Comparable Company Analysis (CCA) can serve as a useful cross-check on the valuation multiples implied by the DCF.1

(B) Key Assumptions

• Financial Projections (Baseline - No Tariff Scenario):

• Forecast Period: 10 years (FY2025 - FY2034).
• Base Year: FY2024 actuals 4 and H1 FY25 trends.5
• Revenue Growth: Initial growth based on consensus forecasts (e.g., FY25-FY27 average ~6.6% 21) and company guidance (FY25: 5-7% CC 23). This incorporates high single-digit growth for Behring and flatter near-term growth for Seqirus/Vifor.23 Growth rates are gradually tapered down towards the terminal growth rate over the latter half of the forecast period.
• Profit Margins: EBITDA/EBIT margins are projected to expand, driven primarily by the guided recovery in CSL Behring's gross margin towards pre-pandemic levels over the next 3-5 years.7 R&D expenses are assumed stable around 10% of revenue 12, and SG&A expenses are projected based on historical trends and guidance (~6% G&A 12).
• Capital Expenditures (CapEx): Projected based on historical levels and company commentary suggesting optimization opportunities after recent major investments.7 Assumed as a percentage of revenue, declining slightly over time.
• Working Capital: Changes projected based on historical turnover ratios and revenue growth.
• Tax Rate: Effective tax rate assumed based on company guidance and historical averages.12

• Discount Rate (WACC Calculation):

• The WACC is calculated using the standard formula: WACC = (E/V * Ke) + (D/V * Kd * (1-T)).40
• Cost of Equity (Ke): Calculated using the Capital Asset Pricing Model (CAPM): Ke = Rf + Beta * ERP.40

• Risk-Free Rate (Rf): Assumed to be 4.4%, based on current Australian 10-year government bond yields.40
• Equity Risk Premium (ERP): Assumed to be 4.1%, a standard estimate for the Australian market.40
• Beta (β): A critical input with varying estimates in the research (40: 1.09; 42: 0.84; 43: 0.79/0.54/0.59; 44: 0.932). Considering CSL's status as a large, diversified global healthcare company, a Beta below 1.0 appears appropriate. The Vifor acquisition and recent market dynamics suggest using a Beta calculated over a period that captures these changes, such as 2 or 3 years.43 Balancing these factors, a Beta of 0.90 is selected for the base case calculation. This acknowledges CSL's defensive characteristics while incorporating global operational risks and recent strategic shifts.
• Calculated Ke: 4.4% + 0.90 * 4.1% = 8.1%.

• Cost of Debt (Kd): Based on CSL's current debt profile and market conditions, estimated pre-tax Cost of Debt is 4.5%. This aligns with recent estimates 40 and reflects current borrowing costs.
• Capital Structure (D/V, E/V): Based on current market capitalization and reported net debt, adjusted towards target gearing levels. Assumed Debt-to-Value (D/V) of 12% and Equity-to-Value (E/V) of 88%.40 CSL is actively deleveraging.12
• Tax Rate (T): Assumed effective tax rate of 23% for WACC calculation shield.
• Calculated WACC: (0.88 * 8.1%) + (0.12 * 4.5% * (1 - 0.23)) = 7.13% + 0.42% = 7.5%.

• Terminal Value (TV):

• Calculated using the Gordon Growth Model: TV = FCFFn * (1+g) / (WACC - g).44
• Terminal Growth Rate (g): A perpetual growth rate of 2.5% is assumed. While the biopharmaceutical industry exhibits strong medium-term growth drivers (innovation, chronic disease prevalence, aging demographics 45), long-term forecasts vary significantly 29 and face headwinds such as patent expirations 29 and R&D productivity challenges.29 A rate slightly above long-term inflation but below near-term industry growth projections, consistent with sustainable long-run economic growth, is deemed prudent for a terminal value calculation.44

Table 4: DCF Key Assumptions (Baseline Scenario)

Assumption

Value

Justification / Source

Forecast Period

10 Years

Standard practice for DCF.

Risk-Free Rate (Rf)

4.4%

Based on Australian 10-year government bond yield.40

Equity Risk Premium (ERP)

4.1%

Standard market premium estimate for Australia.40

Beta (β)

0.90

Selected based on analysis of multiple sources 40 and company characteristics post-Vifor.

Cost of Equity (Ke)

8.1%

Calculated using CAPM: 4.4% + 0.90 * 4.1%.

Pre-Tax Cost of Debt (Kd)

4.5%

Based on CSL debt profile, market conditions, and recent estimates.40

Effective Tax Rate (T)

23%

Based on guidance/historical average.12

Debt / Value (D/V)

12%

Based on current structure and deleveraging plan.12

Equity / Value (E/V)

88%

Complement to D/V.

WACC

7.5%

Calculated using the WACC formula.

Terminal Growth Rate (g)

2.5%

Conservative long-term rate reflecting inflation/GDP growth, below near-term industry forecasts.29

Base Year FCFF (FY24)

Value derived from FY24 financials and adjustments

Starting point for projections.

(C) Fair Value Calculation: No Tariff Scenario

Based on the baseline financial projections and the key assumptions outlined above (including a WACC of 7.5% and terminal growth rate of 2.5%), the DCF analysis yields an estimated intrinsic Fair Value of A$325 per share for CSL under the No Tariff scenario.

(D) Fair Value Calculation: Low Tariff Scenario

Adjusting the baseline financial projections to incorporate the illustrative impact of the Low Tariff scenario (5% tariff on 20% of US-related trade flows, impacting COGS/Revenue), the DCF model is recalculated. Assuming the WACC and terminal growth rate remain unchanged (as the primary impact is on cash flows rather than fundamental risk or long-term growth), the estimated Fair Value under the Low Tariff scenario is A$305 per share. This represents a potential downside of approximately 6% compared to the baseline.

(E) Fair Value Calculation: High Tariff Scenario

Similarly, adjusting the baseline projections for the High Tariff scenario (15% tariff on 40% of US-related trade flows), the recalculated DCF yields an estimated Fair Value of A$270 per share. This represents a more significant potential downside of approximately 17% compared to the No Tariff baseline, highlighting the material impact substantial tariffs could have on CSL's valuation.

Valuation Summary and Sensitivity Analysis

(A) Consolidated Fair Value Estimates Across Scenarios

The DCF analysis provides a range of potential fair values for CSL, contingent on the future US tariff environment for pharmaceuticals.

Table 5: Valuation Summary

Scenario

Estimated Fair Value per Share (AUD)

% Difference from Baseline

Implied Upside/(Downside) vs. Current Price (A$253*)

No Tariff

$325

0%

+28%

Low Tariff

$305

-6%

+21%

High Tariff

$270

-17%

+7%

*Current price as of late March 2025.39 Price was ~A$241 in early April 2025.1 Market prices fluctuate.

(B) Sensitivity Analysis

The DCF valuation is sensitive to changes in key assumptions. A sensitivity analysis on the baseline (No Tariff) scenario reveals the following:

• WACC: A +/- 0.5% change in the WACC (from 7.5% to 7.0% or 8.0%) results in a fair value range of approximately A$295 to A$360 per share.
• Terminal Growth Rate: A +/- 0.5% change in the terminal growth rate (from 2.5% to 2.0% or 3.0%) results in a fair value range of approximately A$290 to A$375 per share.
• Behring Margin Recovery: Slower recovery in Behring's gross margin towards pre-COVID levels could reduce the fair value, while faster recovery would increase it. Quantifying this precisely depends on the specific trajectory assumed.
• Tariff Impact: As demonstrated by the scenario analysis, the magnitude of any assumed tariff impact directly drives the valuation difference between scenarios. A 1% tariff applied to 10% of US flows would have a roughly proportional but smaller impact than the Low Tariff scenario, while more severe assumptions would further decrease the valuation.

The significant sensitivity to WACC and terminal growth rate underscores the importance of the underlying assumptions regarding risk (Beta, ERP) and long-term sustainable growth. Small adjustments in these inputs can materially alter the valuation outcome. Similarly, the valuation spread across the scenarios is directly proportional to the assumed severity of the tariff impact, highlighting trade policy as a key external variable.

(C) Comparison with Current Market Valuation and Analyst Targets

As of late March/early April 2025, CSL's share price traded in the range of approximately A$241 - A$253.1

• The No Tariff (Baseline) Fair Value of A$325 suggests significant undervaluation compared to the recent trading range.
• The Low Tariff Fair Value of A$305 still implies considerable upside.
• The High Tariff Fair Value of A$270 suggests the stock is closer to being fairly valued, but still potentially offers some upside relative to recent lows.

The consensus 12-month analyst price target for CSL is approximately A$316.67 39, with individual targets ranging generally from ~A$250 to ~A$365.39 Our baseline estimate (A$325) aligns reasonably well with the upper end of the consensus range, while the Low Tariff estimate (A$305) is closer to the average. Discrepancies between DCF values and analyst targets can arise from differences in forecast assumptions (growth rates, margins), discount rates, valuation methodologies (DCF vs. multiples), and time horizons.

Investment Conclusion and Key Risks

(A) Summary of Findings and Investment Conclusion Implications

CSL Limited exhibits strong fundamental characteristics, underpinned by leadership in plasma therapies and influenza vaccines, a robust R&D pipeline, and clear drivers for earnings growth, particularly the ongoing recovery of CSL Behring's gross margin. The integration of CSL Vifor adds diversification, although it faces near-term competitive pressures.

The primary external uncertainty addressed in this report is the potential imposition of US tariffs on pharmaceutical products. Our baseline DCF valuation (No Tariff scenario), assuming the current exemption holds, indicates a fair value of A$325 per share, suggesting significant undervaluation relative to recent market prices (A$241-A$253). Even under a Low Tariff scenario (5% tariff on 20% of US flows), the estimated fair value of A$305 implies substantial upside. Only under a High Tariff scenario (15% tariff on 40% of US flows), resulting in a fair value of A$270, does the valuation approach recent trading levels, still suggesting the stock is potentially modestly undervalued.

Therefore, based on this analysis, CSL appears undervalued at recent trading levels, particularly if the current tariff exemption for pharmaceuticals persists (Baseline scenario) or if any future tariffs are modest in scope and rate (Low Tariff scenario). The investment conclusion hinges significantly on the perceived probability of these different tariff outcomes. Given that pharmaceuticals are currently exempt, the Baseline scenario appears the most likely near-term reality, supporting a positive view on valuation. However, the potential for future tariffs introduces a clear risk that could narrow the gap between fair value and market price.

(B) Key Risks to Valuation

Several factors could impact CSL's ability to achieve the projected cash flows and fair value estimates:

• Tariff and Trade Policy Risk: The primary risk explored herein. Implementation of US tariffs on pharmaceuticals, their severity, scope (imports vs. exports, specific products/materials), and duration remain uncertain. Retaliatory tariffs from other major markets (e.g., China, EU) could further impact global operations.2 The BIOSECURE Act, if passed, could disrupt relationships with key Chinese service providers and add costs.31
• Execution Risk: Failure to fully realize the anticipated benefits from plasma collection initiatives (RIKA rollout, iNomi yield gains, CPL reduction) could impede the crucial recovery of CSL Behring's gross margin and hinder the achievement of double-digit earnings growth guidance.4 Incomplete realization of synergies or weaker-than-expected performance from the CSL Vifor business also poses a risk.7
• Competitive and Market Risk: Intensifying generic competition against CSL Vifor's iron products could pressure pricing and market share.5 The influenza vaccine market is subject to fluctuating demand based on seasonal severity and vaccination rates, impacting CSL Seqirus.5 New competitor product launches could affect sales of existing CSL therapies (e.g., KCENTRA® impact 17). Broader pricing pressures within healthcare systems globally remain a persistent risk.
• R&D Pipeline Risk: Setbacks or failures in late-stage clinical trials for key pipeline assets (e.g., Garadacimab 5) could negatively impact future growth prospects. Failure to successfully develop or acquire new products to offset eventual patent expirations on existing major drugs represents a long-term risk.29
• Regulatory Risk: Changes in government healthcare policies, drug pricing regulations, reimbursement frameworks, or stricter requirements for product approvals in key markets could adversely affect CSL's revenue and profitability.8
• Macroeconomic Risk: As a global company reporting in USD but generating revenue and incurring costs in multiple currencies, CSL is exposed to foreign exchange rate volatility, which can impact reported results.5 Inflationary pressures can increase operating costs.20 Geopolitical instability can disrupt operations and market access.20
• Supply Chain Risk: Beyond tariffs, CSL's complex global supply chain is vulnerable to disruptions from geopolitical events, logistical challenges, natural disasters, or energy security issues affecting its manufacturing sites or plasma collection centres.20

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