CSL – The premier serums provider

The healthcare space in Australia is dominated by global niche giants that have filled gaps in the market.

Source: Bloomberg

The likes of Cochlear, ResMed, Ramsey Healthcare and Ansell have all carved out global market share in their respective markets and continue to do so.

However, none of the aforementioned comes close to the market leading position CSL has achieved over its 98 year history. CSL remains the global leader in biopharmaceutical therapies and its plasma-derived therapies continue to be the market leaders in their field. Its bio range of vaccines and anti-venoms remain unrivalled and operations in the key US and European markets continue to attract high level expertise and investment.

From a fundamental point of view, there are three reasons CSL continues to be a stock of choice:

  1. EPS growth over the past six years has averaged 21%. The consensus estimates see CSL growing at a rate of 16% in FY15 and FY16.
  2. Funding for organic growth comes from spending 6% of revenue in its research and development divisions. The results being produced from these divisions are highly encouraging.
  3. Scale and product innovation coupled with very measured and conservative capital management are key drivers for CSL’s value going forward.

The company reported underlying net profit growth of 11%, which was broadly in line with the market expectations. However, its standing was strengthened by revenues accelerating 14% over the year. This was despite fears its nearest competition would erode its market share. The Immune Globulin range saw 18% in revenue growth. What is just as pleasing, is recent data from the PPTA, which shows the plasma products shipped to North America grew by 11% in the five months to May 2014. Albumin products grew at 10% in the same period.

This data gives strength to the EPS estimates. The demand for IG and albumin remains robust and it suggests pricing will remain solid over the coming year. With the current estimates around margins and sales momentum, independent statistics like this will only increase CSL’s standing. With demand in the key US market holding firm, particularly in subcutaneous serums, its bioCSL division is providing a very solid revenue base to back the growth in IG. We see the premium multiples at current prices as entirely justified.

Helping these multiples, is the fact that CSL has strong market tailwinds. 38% of earnings come from the US, with Europe making up a further 29% of revenue. The diversification of its earnings across key developed markets, coupled with an expected long term AUD fall, will provide increasing support for CSL. China is fast becoming CSL’s major market in its ‘Rest of the World’ division; further evidence of its developing earnings pipeline.

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