CSL Limited (ASX: CSL) is a global company that develops and manufactures biopharmaceutical products mainly derived from blood plasma. It also develops and manufactures influenza vaccines. CSL’s key markets are the United States (48 per cent of revenue) and Europe (25 per cent of revenue), CSL’s market capitalisation is around $A125 billion and CSL is the 3th largest company listed on the ASX.

CSL has been one of the strongest performing Australian companies since its public listing on the ASX in 1994. For example, the average annual growth in CSL’s share price has been over 25 per cent per annum since being publicly listed in 1994. This year (1 January 2019 to 18 November 2019) CSL’s share price has increased 49%.

What are the recent developments?

CSL’s share price is currently trading at A$272.45, which is an all-time high. CSL share price is up 35,283% since its IPO where it was being offered at 0.77 cents.

What is the outlook for CSL?

Looking forward, the outlook for CSL is positive.

  • Currently, CSL is ranked number 1 in global plasma therapies (a $US30 billion global industry and CSL has only two other global competitors) and number 2 in influenza vaccines (a $US6 billion global industry).
  • CSL has achieved economies of scale and has a very strong competitive position in both markets. Additionally, both industries have very high barriers of entry, reducing the likelihood of further competition in the future. An example of CSL’s competitive position is that it is the most efficient in the United States market at collecting plasma which enables it to keep its costs at industry best practice.
  • CSL is expanding production facilities located at Broadmeadows in Victoria and Kankakee in the United States as well as elsewhere. The Broadmeadows facility is expected to produce therapies with an estimated annual market value of A$850 million by 2026. CSL’s CEO Paul Perreault notes:

CSL’s investment in Broadmeadows embeds the site into our global plasma manufacturing supply chain, which now supplies lifesaving therapies to patients in more than 60 countries.

  • This expansion in production reflects growing demand partly stemming from the aging population and a growing proportion of the population having access to high technology medicine.
  • CSL spends around 10 per cent of its revenue on research and development ($US832 million in 2018-19). It has a portfolio of projects that could provide “meaningful” earnings over the next decade.

Is CSL too expensive to buy?

While the outlook for CSL is positive, CSL is currently very expensive to buy. CSL is currently trading at a P/E ratio in the low to mid-forties with an annual dividend yield of around 1% based on estimated 2019-20 earnings. Investors should closely monitor CSL in the coming months to observe whether there is a correction in the share price that might provide the opportunity to buy CSL at a cheaper price.

 


 

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This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

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November 18, 2019