What is the stock?
CSL is Australia’s leading biotechnology company. It is the global leader in the blood plasma therapies sector and the second-largest supplier of seasonal influenza vaccines, with combined annual sales of more than US$7.5 billion.
How long have you held the stock?
We have held it since June 2017.
What do you like about it?
We believe CSL is at an attractive level, given its strong earnings growth outlook, supported by its portfolio of high-value therapies. Key earnings drivers during the next 12 to 18 months include Haegarda, Idelvion and Hizentra for hereditary angioedema, haemophilia and autoimmune diseases, respectively. Each of these therapies is expected to deliver strong revenue growth as they offer better therapeutic outcomes or superior patient convenience relative to competitor products. Sales growth from these therapies should also boost margins.
How is it better than its competitors?
CSL’s strategic focus and investment in driving down the cost of manufacturing – even as raw material costs have risen – has been exceptional. This success is most evident in the group’s plasma collection infrastructure, which has allowed it to grow output and sales faster than its competitors, at a time when supply is barely keeping up with demand. We estimate CSL sources plasma (its key raw material) at a 20% discount to its major competitors, Shire and Grifols. The group’s cost advantage also positions it well for the inevitable downward pressure on healthcare funding.
What do you like about its management?
The CSL management team has proven itself to be best in class over recent years. Not only have they demonstrated exceptional discipline in driving down costs, their focus on continued reinvestment in the core business through cycles has delivered strong returns for shareholders.
What is the target price?
Our target price is $220.
At what point would you sell it?
When the stock reaches our target price.
How much has it added to your overall portfolio during the past 12 months?
The stock has returned more than 30% in the last 12 months.
Where do you see value?
Recent market pullback is welcomed in what was a very expensive equities market. Sharp sell-off in quality companies such as CSL is presenting investors with opportunities to take positions in businesses that have high-quality earnings and strong growth prospects. With all things considered, we believe this pullback is a healthy part of a temporary bull market correction. Investors should focus on the fundamentals of the businesses and take an active stance when investing.
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