Citi upgrades CSL (ASX:CSL) share price to buy rating on Vifor Pharma deal

CSL has found a new bull…

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The CSL Limited (ASX: CSL) share price will be one to watch when it returns from its trading halt.

This follows the release of a broker note which is tipping the biotherapeutics company’s shares to shoot higher.

What’s happening?

In case you’re not aware, at present the CSL share price is paused while the company raises funds to make a major acquisition.

CSL has signed an agreement to acquire Swiss biotech giant Vifor Pharma for US$12.3 billion (A$17.2 billion) in cash. This will be funded through a combination of a fully underwritten US$4.5 billion placement, a US$534 million share purchase plan, new debt, and existing cash reserves.

Management notes that the deal expands its leadership across an attractive portfolio focused on Renal Disease and Iron Deficiency. Furthermore, it has a high quality pipeline and complements CSL’s existing therapeutic focus areas including Haematology, Thrombosis, Cardiovascular, and Transplant.

What did the broker say about the CSL share price?

The team at Citi is very positive on the acquisition. So much so, in response the broker has upgraded CSL’s shares to a buy rating with an improved price target of $340.00.

Based on the current CSL share price, this implies potential upside of 14% over the next 12 months.

Citi commented: “CSL has announced that the acquisition of Vifor Pharma – it is acquiring the company at CHF165.5 (US$179.25), a ~65% premium to where the stock was trading pre bid discussion and a ~37% premium to the three-month VWAP. We calculate the acquisition to be ~9% accretive to NPATA per share (NPAT before acquisition-related amortization) – a proxy for cash flow. Including amortization, the transaction is expected to be “modestly accretive” to EPS.”

“CSL is acquiring Vifor Pharma at roughly ~14x FY23 EBITDA (including the full run rate of US$75m in cost synergies). Time will tell if CSL has paid a full price given that the revenue is currently subdued because of the pandemic, and several new products are yet to launch, but the transaction should be ROIC dilutive in FY23. CSL’s management team presented the transaction as being strategically aligned with the existing business,” it added.

The CSL share price is up 4% in 2021.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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