CSL Limited – CSL:ASX – EOFY20 Update

Diversified biotech company, one of the major successes and perennial market darlings of the ASX. MBI analysed them over a year ago (May 19). Here’s a brief summary of our previous thoughts:

• They have three segments; 
  • Behring – Diversified Biotech, 
  • Plasma – Largest collector of human blood in the world, 
  • Seqirus – Second largest provider of influenza vaccines in the world. 
• Immaculately managed financials, highly profitable, great growth. 
• Good acquisitions program that adds to their value. 
• Perennial market darlings, and have been for the last 10 years. 
• Always too expensive, but arguably worth it. 
• Debt is a bit high, and growing. 

Weighing machine

CSL has been consistently growing their sales, earnings, and book value for the past 10 years, with a steep acceleration in the last 3, though there’s some signs of earnings being left behind a little, which can be seen in their RoE dropping, from the 40s three years ago, to the mid 30s for the last two years. They payout about 45-50% of their earnings as a dividend, which is about a 1-1.5% yield. 

Voting machine

They are incredibly popular, the last time their PE dropped below 20x was in 2012, and the lowest it’s been in the last 5 years has been about 28x. Currently it’s at all time highs, sitting around 44x. 

Recent events

The last year hasn’t been the best for them, but they performed in line with their forecasts (9% sales growth. 11% earnings growth). 

One of the broad themes we’ve noticed is some surprises in sectors you’d expect to benefit from a global pandemic (e.g. Funerals have seen lower deaths due to all the isolation). CSL seems to be one of these. In all essence, they haven’t performed badly. It’s just that they didn’t meet the lofty expectations of 1. Their past performance, and 2. The expectations of a vaccine company. Surely they boom out of this!?…

General consensus is that their long term prospects are good, and should benefit out of this. In the short term they have potential issues with blood plasma collection (due to the pandemic), though they have enough supply to have provided positive growth guidance for FY21 (just). 

Valuation

SWSt has them valued at $175.69

My 7YrCF has them at $170.92

My WeVo Valuation has them at $380 with 5% return from dividends and 34% from Capital Gain. 

Final thoughts

Pros: Legendary business. Has a great position in it’s industry, has outperformed for many years, and will continue to outperform for many more.

Cons: They’re way too expensive, and the price has gotten much further ahead of itself than it should have. For 16% growth per annum you can find this in better places at lower cost. 

Result: Hold, these guys are too expensive to buy, but too good to sell. This is a long term hold, sell at price spikes of PE >70x (~$470), or buy if the PE drops to <30 (~$200).