How long have you held the stock?
Since January 2012; from 2009 to 2011 CSL’s earnings in local currency (and share price) declined due to the strength of the Australian dollar. We timed our purchase to coincide with the plateauing of the local currency.
What do you like about it?
Everything really; superior management and the highest growth rate of any stock in the top 20. Since it listed in 1994, CSL has grown its earnings per share by on a compound basis by 23.3% p.a. (26.2% p.a. in US dollars). The company has managed to successfully expand offshore and become the leading player in plasma-derived therapies globally.
CSL Limited (CSL)
Source: Yahoo!7 Finance, 21 August 2014
How is it better than its competitors?
CSL appears to be more innovative; they have the largest portfolio of high margin specialty products and are the lowest cost producer of plasma products. They invest heavily in R&D, not only in new products where the returns are long dated, but also in improving business efficiency where the returns are more immediate. They also put a lot of effort into the cost of collection and fractionation, as well as extending approvals of existing products, all of which generate shorter-term returns.
What do you like about its management?
They are pragmatic, disciplined and not arrogant. They don’t waste shareholders’ funds on marginal acquisitions or empire building unlike a number of their brethren in the top 20. Since late 2009, CSL has bought back 20% of the company’s issued capital (see chart below).
What is your target price on CSL?
At least $82 over the next 12 months.
At what point would you sell it?
The only reason to sell it would be (over) valuation. If it traded at ~26x we would take profits (the current multiple is 21x).
How much has it added (subtracted) to your overall portfolio over the last 12 months?
The stock has been flat (zero contribution) over the last year, however the investment has added 2.42% to the portfolio return over the last three years. We are expecting it to contribute this year.
Is it a liquid stock?
Yes, it trades over one million shares ($70m) per day.
Where do you see the value?
In the current valuation vs historic multiples; it has the highest growth rate of any stock in the top 20 companies (historic and prospective); in their R&D, CSL spends close to half a billion dollars in R&D.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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