CSL Limited (CSL)

By Daniel Goulding

I believe CSL is best of breed in the healthcare sector.

CSL is a biopharmaceutical company with a global footprint. It specialises in plasma products, vaccines, pharmaceuticals, and research and development.

The company has a market capitalisation of A$17 billion.

Three-quarters of its earnings is derived from CSL Behring. This division operates one of the world's largest human blood plasma collection networks. The plasma is used to generate life-saving therapeutics, used in a wide range of treatments. The global plasma market  is characterized by high barriers to entry, the limited supply of blood plasma, and the growing demand for its products. As a result, CSL enjoys strong pricing power and in turn strong margins.

With CSL, you are buying a franchise, not a stock.

As a long term investor I am not interested in buying lousy stocks that trade on attractive price-earnings multiples. Such companies tend to be cheap for a reason - they are perennial underperformers.

As Warren Buffet, the world's richest investor, asserts: price is what you pay, value is what you get.

I want a franchise with an impeccable track record of creating wealth for shareholders. CSL ticks all the boxes in this regard with its excellent return on equity (which has averaged 21.8% over the past five years), strong cash flows and no net debt.

The CEO Brian McNamee is a shrewd operator. After being rebuffed by American regulators on their potential acquisition of Talceris, management proceeded with a massive on market buy back of shares.

This stands in sharp contrast to the recent BHP bid for Potash. Why buy Potash when you can buy back your own stock at less than half the price (based on an enterprise multiple)?

Sometimes the very best investment you can make is yourself. With no suitable acquisitions on offer, CSL have announced another on market buy back of shares, amounting to $900 million. Shareholders will receive a lager slice of the earnings cake going forward - management focused on building wealth rather than growing for growth's sake is exactly what I like to see in my managers.

On our prospective numbers for 2011, CSL is trading on 14 times earnings - a multiple I consider undemanding for a global franchise with a strong track record of creating wealth.

Investors can use any weakness in the share price below 3100 to commence accumulating a position in this franchise. I consider the company a strong buy below 2900.


Daniel Goulding

Office: 07 4771 4577 | Fax: 07 4771 4527
Email: [email protected]