Trump’s tariffs and anti-vaxxer clash with Australia’s $130b health giant

To get an idea of where the real financial gravity sits within the Australian investing universe, CSL’s market valuation plunge on Tuesday exceeded the entire $17 billion value of Qantas Airways with a billion or two to spare.

It would be unfair to blame this huge 15 per cent stock slump only on CSL’s battles with the Trump administration. The biopharmaceutical giant has other challenges that were revealed on Tuesday with its full-year financial results and massive cost-cutting.

But that should only add to the alarm for investors who may have noticed its outlook statement included the words: “This guidance assumes no impact from pharmaceutical sector tariffs.”

For the uninitiated, CSL’s business is dominated by blood plasma products but includes iron-deficiency-type treatments as well as vaccines. The vaccines company, Seqirus, will soon be spun off into a separately listed business.

CSL chief executive Paul McKenzie put a brave face on Donald Trump’s threats to put tariffs of up to 250 per cent on pharmaceuticals. This could affect $2 billion worth of Australian exports, and the single biggest impact is expected to be on CSL’s US exports, which are dominated by plasma products.

McKenzie pointed out to investors and analysts that most of the company’s US business is sourced there, but the repeated questions from his audience say plenty about the market’s nervousness.

Especially when one question queried whether the Melbourne-based CSL was re-domiciling to the US.

“I’m not quite sure I relate to the re-domicile point. But just in general for tariffs, if you look at our plasma-derived products – as required from [US] regulatory, the plasma is sourced all in the US,” McKenzie said.

“That provides the active pharmaceutical ingredient. That provides us the tariff conversation strength in our view.”

A good answer but clearly not the whole story, hence the caveat in his outlook statement.

But McKenzie did not wait for questions on vaccines before putting out an elbow in the direction of Trump’s anti-vaxxer health department boss, Robert F. Kennedy Jr, who appears to have already triggered a decline in vaccination rates.

“We view the softness in the US seasonal category as highly irrational based on the vaccine’s risk-reward profiles and the scale of disease burden, which this year reached a 15-year-high,” the CSL boss said.

The vaccination decline will be a drag on a business that will be spun off into a separate ASX-listed giant over the next 12 months.

But this brings us to the nub of the thousands in job cuts and the main reason CSL shares were dumped on Tuesday.

The CSL share price tripled over the past decade as the former government enterprise became a global giant, but its earnings growth mojo has wavered recently despite it reporting a 15 per cent rise in net profit to $3 billion.

That is not a situation the market will accept for a stock that is trading on such a high earnings growth multiple, and something had to give on Tuesday.

“Whilst the cost-out and other strategic re-prioritisations might ostensibly lift EPS [earnings per share], we need to question whether a lower multiple might be appropriate in valuing them,” Wilsons Advisory analyst Shane Storey said in a note after CSL announced its results.

The restructure, which will remove up to 15 per cent of the CSL workforce, may pay off down the track. Along with the rationalisation of research and development to six centres and honing the focus of CSL itself around its main plasma business – while the vaccine business, Seqirus, gets its own separate corporate home.

But there is execution risk. And then there is the Trump tariff risk factor. The latter may receive some clarity in early October.

Trump’s White House sent letters to 17 pharmaceutical giants warning that high-income nations such as Australia could not be offered cheaper prices than the US. These companies, which did not include CSL, have until the end of September to respond.

If there was some reason for cheer around CSL’s Melbourne headquarters, it is that the company’s roughly 3000 Australian-based staff will be spared the worst of the job cull, in which about 3000 staff are expected to go from CSL’s global operations.

But the company has too many eggs in Trump’s basket for anyone to breathe easily at this stage.

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