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 MARKET REPORTS |
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Fundamentals
Take a look at healthcare leader CSL
September 04, 2008
Tim Lincoln, managing director of Lincoln Indicators
Company: CSL Limited
ASX Code: CSL
Current Share Price: $41.05
1 Year High/Low: $43.19/$28.83
This week Tim Lincoln profiles CSL Limited (CSL), and illustrates the importance of monitoring company news and announcements when considering a potential investment opportunity.
CSL Limited (CSL)
Operations
CSL Limited (CSL) specialises in biologically based health care products and the supply of blood products and vaccines. The CSL Group includes CSL Bioplasma, CSL Biotherapies and CSL Behring incorporating ZLB Plasma. The company operates major facilities in Australia, Germany, Switzerland and the U.S. and has over 8,500 employees in 27 countries.
Investment Opinion
CSL may be an attractive investment opportunity for several reasons. Firstly, it has a solid track record. The company has performed exceptionally well in the past four years with an average EPS growth of 72.64% p.a. Secondly, it operates in the biotechnology sector which continues to experience high growth as a result of constant demand for life-saving products. Lastly, the company’s stable position in the market will enable it to take advantage of a very positive outlook for the sector and should translate to higher profits and increased shareholder value.
Financials
CSL has maintained its status as a Lincoln Star Stock following analysis of the company's FY08 full year results. The company is in a Strong position of Financial Health. Whilst there is weakness in the company’s Balance Sheet, this is offset by strength in the Profit and Loss and Cash Flow statements. Therefore, financial risk is deemed to be manageable. Net operating profit before tax and significant items rose by 25.92% to $952.024 million for the period 1 July 2007 to 30 June 2008 from $756.059 million in the previous corresponding period. The company's strong earnings growth was fuelled by high demand for plasma products and GARDASIL®. ROA improved from 18.00% to 20.28%, while pre abnormals EPS rose 33.29% to 126.85 cents.
Valuation
The company last closed at a share price of $41.05. This is a 10.19% discount to the Lincoln Valuation of $45.71, which indicates that there is potential for share price appreciation at the current price. CSL also offers a fully franked dividend yield of 1.12%.
Outlook
The outlook for CSL is positive with the company continuing to anticipate stable market conditions for its plasma therapies business and a growing contribution from royalties associated with the international sales of GARDASIL®. Revenue from its influenza vaccine business is expected to increase over the medium term as new northern hemisphere markets are developed. Further positive results are expected from their recent ‘Talercris’ acquisition. Talecris is a leading manufacturer and marketers of plasma derived protein therapies in Northern America. The business was bought for $3,483 million and is expected to generate synergies of approximately USD$225 million p.a. (over the first 3 years). In a media release accompanying the company’s FY08 full year result, management announced that it expects to report net profit after tax of between $810m and $850m for FY09.
Why are company news and announcements so important?
Twice a year, all listed companies are required by law to report their annual and interim financial results to the ASX. By analysing and interpreting these results as soon as they are made publicly available, you can identify financially healthy companies exhibiting wonderful fundamentals before the market understands the full significance of their report.
Also, by paying attention to company announcements made directly to the ASX, you can stay up-to-date with the activities and performance details of stocks between annual and interim reports.
News and announcements can often have an immediate impact on a company’s share price. Good news such as profit upgrades or strategic acquisitions can have a positive impact on share price. Bad news such as profit downgrades or the resignation of a key executive can often have a negative impact on share price.
In our example of CSL above, the company reported outstanding financial results for the full year FY08. Plus, on 13 August 2008 the company announced the strategic acquisition of Talecris Biotherapeutics Holdings Corp. (“Talecris”) to expand their global service offering and position the company for continued future growth.
This news has been perceived favourably by the market and sentiment on the stock remains positive. Should CSL achieve their 2009 earnings targets, the company is in an ideal position to deliver another period of strong share price appreciation to shareholders.
Tim Lincoln is Managing Director of Lincoln, Australia's premier fundamental analysis research house and fund manager offering intelligent sharemarket solutions for the conscientious investor. Click here to register to receive Star Gazing – Lincoln's Fortnightly Stock Tip.
Important information:
Author: Tim Lincoln. Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740.
This information is current as at 29 August 2008.
Our advice and the advice of our Authorised Representatives (including advice in this communication) are prepared without taking into account your personal circumstances.
You should therefore consider the appropriateness of the advice in light of your objections, financial situation and needs, before acting on it. Where our advice relates to the acquisition or possible acquisition of a managed fund, you should obtain a copy of and consider the Financial Services Guide (FSG) before making any decision. Investments can go up and down. Past performance is not a reliable indicator of future performance.
Our analysis and advice is impacted by AIFRS. Please refer to our website for further information: www.lincolnindicators.com.au/AIFRS. Testimonials are provided by third parties for information purposes only and are not intended to be financial product advice. They do not represent opinion or advice from Lincoln. The information provided may not be appropriate to your particular circumstances. You should consider obtaining your own independent advice before making any decision.
Lincoln, its director, employees and agents, makes no representation and gives no warranty as to the accuracy of this communication and does not accept any responsibility for any errors or inaccuracies in or omissions from this communication (whether negligent or otherwise) and shall not be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on any information contained herein. No reader should rely on this communication as it does not purport to be comprehensive or to render advice. This disclaimer does not purport to exclude any warranties implied by law which may not be lawfully excluded. Lincoln, its employees and/or its associates hold interests in: CSL. This position could change at any time without notice.
Economic and other information taken into account in forming any opinions are subject to change and therefore opinions expressed as to future matters may no longer be reliable.
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Fundamentals: Take a look at healthcare leader CSL
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