The technical factors of CSL indicate a strong buy. CSL has amazing investor sentiment and the ability to deliver results has earned it a high earnings multiple. If CSL can continue to produce results their overvalued fundamentals will be supported. Should I buy CSL Shares?
Over the course of 10 years, CSL has delivered market-beating returns of 91.09% per year. Almost doubling investor’s money every year! I am bullish on CSL shares, here’s why.
CSL Shares Price Today
In November of 2020, CSL reached its all-time high with a share price of 342.75. The CSL share price did not respond to the COVID crash and continued higher as the rest of the market fell. Today the share price is 305.52. This is at the upper quartile of its 52-week range of 242-320.42.
Over the past ten years, CSL is up over 810%. During this time it’s returned a breathtaking 91.09% each year. That’s 85.5% attributed to capital gains and 5.6% to its dividend return over this period. This has far outperformed the market’s total return of 64% over the same period.
Due to CSL shares price being largely unaffected by COVID the company has far underperformed the market average over a one-year period. 5.8% from CSL compared to the market returns of 27.7%. Of course, these gains were only realized for those who purchased during the crash.
Should I Buy CSL Shares: About CSL Shares
CSL Limited (CSL) is a global biotechnology company that develops and delivers innovative medicines that save lives, protect public health and help people with life-threatening medical conditions live full lives. CSL is also involved in the research, development, manufacture, marketing, and distribution of biopharmaceutical and allied products. CSL’s operating model for its two businesses, CSL Behring and Seqirus. Source: Market Index
Basically, CSL operates in three core areas;
CSL Behring (Plasma): This area is the largest revenue driver for the company. They are responsible for the collection and refinement of blood and blood plasma products (namely immunoglobulin and albumin). CSL Plasma is the largest collector of human blood plasma in the world. They produce a range of life-saving medicines for critically ill patients. From burns treatments to transfusions
Seqirus: Seqirus is one of the largest influenza vaccine companies in the world they manufacture and distribute influenza vaccines annually.
CSL Behring: The final segment makes up a small portion of CSL’s business. CSL Behring also develops different treatments and drugs for rare diseases, and many Australian anti-venoms.
These three core strategies have an excellent synergy that makes CSL an excellent business. Its massive blood plasma collection business allows it the ability to research other treatments and build its other businesses.
“One fund manager likened CSL to a mining company producing copper and gold that has a byproduct of diamonds found during the process. The core business delivers strong profit growth and integral to that is the opportunity for outsized gains”
By also targetting rare diseases and anti-venoms CSL can have a massive control and monopoly over the treatment of these conditions. Which has proved profitable for CSL shares.
Incorporated in ACT on 01/04/1991 as Commonwealth Serum Laboratories Ltd, an Australian government body focused on vaccine manufacture. The group changed its name to CSL Ltd on 07/10/1991. GICS Industry Classification changed from 35202010 ( Health Care, Pharmaceuticals & Biotechnology, Pharmaceuticals, Pharmaceuticals) to 35201010 (Health Care, Pharmaceuticals & Biotechnology, Biotechnology, Biotechnology) on 1/07/2002.
Privatization of CSL Shares
In 1994, the Commonwealth facility was privatized as CSL Ltd. and was publicly listed and traded on the ASX. The company completed its IPO in June 1994 at just $2.30 per share.
Should I Buy CSL Shares: Dividend History
CSL typically announces a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend).
CSL has paid biannual dividends every year since 2009. CSL does not pay a franked dividend. The current average yearly dividend for CSL shares is $2.887 giving them a yield of 0.92% at the current share price.
Should I Buy CSL Shares: Investor Sentiment
After surveying 99 Investors about their current CSL shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently a strong bullish investor sentiment on CSL shares.
Should I Buy CSL Shares Fundamentals
|Volume 4W Avg||653,847|
|NTA per Share||$17.13|
In terms of fundamentals, CSL shares are relatively overvalued. Their PE multiple of 38.22 is far above the market average of 15-20x. Of course, this could be interpreted as high investor sentiments for the growth of CSL. Here’s how to interpret PE
Their PEG also reflects poor value. The company also has a very low book value of just $17.13 compared to its share price of $305.
To support their valuation the company does have an amazing ROE of 27% compared to the market average of only 12.9%. CSL has continuously delivered results and as such has developed a relatively high earnings multiple.
Should I Buy CSL: Financials
CSL released its previous Full-Year report in August 2020. Here are the highlights:
CSL delivered another strong year, with reported net profit after tax of $2,103 million, up 17% at and revenue up 9%, reflecting;
- Solid growth in the immunoglobulin portfolio
- Successful evolution of hemophilia portfolio, driven by IDELVION®
- Transition to own distribution model in China
- Delivery on product differentiation strategy with strong profit growth for Seqirus
- No material revenue impact to date resulting from the COVID-19 pandemic, however, the situation is fluid and some elements are unpredictable
- Sales revenue up 7.2% to US$8.8 billion.
- Net profit after tax for the year attributable to members of the parent entity up 9.6% to US$2.1 billion Underlying Net Profit after Tax at Constant Currency, Earnings per share $4.63, up 17% at CC2
- Final dividend of US$1.07 per share (approximately A$1.48), Total full-year dividend increased to US$2.02 per share, up 9% or in AUD $2.95 per share, up 11%
As we can see CSL was largely unimpacted by the COVID-19 pandemic which was reflected in the share price performance and of course expected due to the nature of the business. Earnings were up massively as the company continues to produce strong results.
In CSL’s income statement we see their sales revenues have shown steady growth over the year. Total operating revenues are up 7% from $8.5 billion to $9.15 billion (USD). Expenses have also increased. Despite this, their gross profit margins have increased from 56 to 57%. Overall NPAT is $2.1 billion for the year ending 30 June 2020. This is up over 10% from the previous year.
CSL has continued to grow its incredibly strong balance sheet. We can see their cash and cash equivalents have almost doubled to $1.2 billion. When read in conjunction with the cash flow statement this jump seems to have been attributed to earnings as well as borrowings. CSL’s total assets are $15.5 Billion. With net assets of $6.5 Billion.
Cash Flow Statement:
During the year we see CSL received $1.6B from borrowings and paid down $1.4B in borrowings. Total dividends paid were $883 million. The group also paid $355 million in tax obligations.
Should I Buy CSL Shares: Technicals
In summary, the upside is likely to prevail as long as $293 is supported. The alternative scenario is that a downside breakout of $293 would call for $286 and $283.
Here’s a breakdown of the detailed Technical Factors;
Insider Ownership and Trading
CSL has insider ownership of 0.1%. Meanwhile, general investors own the majority 71.7%, and institutions own 28%, and the remaining 0.2% are owned by private companies.
The lack of insider ownership may seem like a red flag, however, it is important to recognize that CSL is an ex-government-owned business that has been privatized. We see that all privatized companies have the same proportion of ownerships as CSL, this includes CBA, TLS, TAH, QAN, SYD, SUN. Here’s a report by the RBA if you’re interested in privatization.
There has been some minor insider buying activity in 2021. Around $230 million in shares have been purchased by insiders in the past six months.
The management of CSL is a clear asset to the business and largely to thank for the business’s success. The first is former CEO, Brian McNamee, and current CEO Paul Perreault, who has enormous experience in the bio-pharma/biotech industries and has continually led strategies of growth through expansion and acquisition of key assets and businesses.
To complement this the Board members have excellent backgrounds in the research space. Including the ex-head of the CSIRO, ex-head of national M&A from Ashurs, ex-global president of pharmaceutical at GlaxoSmithKline, the Board also included the current CEO of AstraZeneca.
Should I Buy CSL Shares: Future Prospects
CSL is contracted to locally produce AstraZeneca COVID vaccines. With the company hoping to produce 50 million doses by the end of the year. CSL is capable of producing 1 million doses per week. With hopes of increasing productivity
“CSL has been continuously working to increase the number of AstraZeneca COVID-19 doses we can manufacture, with production now exceeding a million doses a week. This is an ongoing process of assessing refinements and improvements across the entire manufacturing cycle.”
There are also talks CSL may manufacture the mRNA Pfizer vaccine with support from the government.
“Conversations with the Australian Government about ways CSL can support the COVID-19 vaccination program are ongoing, and following completion of the AstraZeneca vaccine campaign, CSL would, if requested by the Australian Government, reassess its ability to manufacture other vaccines,”
The Funded Deed with the Australian Government and CSL to manufacture AZD1222 vaccine is worth an undisclosed sum but estimated at around $1 billion.
It’s difficult to estimate how much CSL will profit from their COVID-19 partnership. Although Seqirus their Influenza vaccine subsidy has profited substantially, with sales up 38 percent to $US1.4 billion amid global demand for influenza vaccines in the face of the COVID-19 pandemic.
The Price of Blood
CSL’s plasma business is largely reliant on the US market. The US is one of the only counties that allow donors to sell their blood and plasma products. Thus it is worth considering that the changing of US regulations would have a material impact on CSL. The US blood donors allow massive amounts of blood/plasma for medical treatment and research. CSL has plans to expand into China, which would help mitigate this risk.
CSL Competitive Advantage
CSL operates in the healthcare sector. Their vaccine and therapies are essential to healthcare and are immune to recessionary periods which was illustrated in 2008 and again during the COVID recession.
- No matter what happens in the global economy, there will constantly be demand for CSL products. They have a highly Inelastic demand curve and proven resilience.
Their strong balance sheet allows for the manufacture of new products and extensive R&D. From which they have the ability to generate positive operating cash flows and net profit. They don’t depend on investor’s capital.
They are an essential business to the Australian economy and general population. They are essential to the future of the country and will continue to be supported by the government
- CSL took on the responsibility of creating a COVID supported by the government. They are now supported in the contract manufacturing of AstraZeneca vaccines in Australia.
“We see potential in the years ahead to create enhanced value and to better serve our patients through the use of data, connectivity, and technologies that can improve our operations and increase our understanding of the patient experience. Today, we are taking the necessary steps to enable digital transformation throughout the business.”
Should I Buy CSL Shares: Prophet’s take
CSL is a resilient business essential to the health of the Australian and larger global communities. They have shown the ability to withstand several recessionary periods and have made impressive long-term gains for shareholders.
The synergies of their business have allowed CSL to be a massive global healthcare player. This has also allowed the business to grow rapidly and respond quickly to the COVID pandemic, all while utilizing its strong balance sheet without the need for investor capital.
The current technical factors indicate a strong buy, and given the excellent business model, a premium is to be expected on CSL fundamentals. We are currently BULLISH on CSL shares.
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