CSL Limited

CSL Details
 
Strong Set of Numbers for 1H20: CSL Limited (ASX: CSL) is engaged in the development, manufacturing and marketing of pharmaceutical and diagnostic products, cell culture media and human plasma fractions. As on 13 February 2020, the market capitalisation of the company stood at ~A$148.99 billion. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported an increase in revenue by 11% to USD 4,911 million and a similar rise in NPAT to USD 1,248 million. As a result, EPS went up to 2.75 US cents, representing a growth of 11% on pcp.

During 1H20, CSL also witnessed a growth of 26% in sale of Immunoglobulin to USD 1,985 million, which was mainly due to strong demand for PRIVIGEN® and HIZENTRA®. The company also declared an unfranked dividend of 95 US cents per share which is to be paid on 9 April 2020.


Growth in 1H20 NPAT (Source: Company Reports)

Future Expectations and Guidance: The company has upgraded its FY20 guidance and expects strong demand for CSL’s therapies. It also anticipates growth of 10-13% in FY20 and is focusing on innovating its services and technology. CSL expects FY20 NPAT to be in the range of USD 2,110 million to USD 2,170 million at a constant currency basis which is inclusive of the impact of GSP (Good Supply Practices) transition in China.  

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of CSL gave a return of 47.34% in the past 6 months and a return of 11.46% in the past one month. The stock is trading very close to its 52-week high of A$335.99. During FY19, EBITDA margin and ROE of the company stood at 36% and 41%, respectively. Considering the returns, current trading levels and decent outlook, we have valued the stock using Price to Cash Based relative valuation method and arrived at a downside of mid-single-digit (in percentage terms).  For the said purposes, we have considered Cochlear Ltd (ASX: COH), Sonic Healthcare Ltd (ASX: SHL), Resmed Inc (ASX: RMD), etc., as peers. Hence, we give an “Expensive” rating on the stock at the current market price of A$330.99, up by 0.835% on 13 February 2020.


CSL Daily Technical Chart (Source: Thomson Reuters)

Pro Medicus Limited

PME Details
 
Significant Increase in Profits: Pro Medicus Limited (ASX: PME) is engaged in the development and supply of software and IT solutions to the Public and Private Health sectors. As on 13 February 2020, the market capitalisation of the company stood at ~$2.84 billion. The company has recently released its results for the half-year ended 31 December 2019, wherein it reported an increase of 15.7% in revenue to $29.3 million and a rise of 32.7% in after-tax profit to $12.1 million. In the same time span, cash reserves of the company stood at $38.8 million, reflecting a rise of 20.2% on pcp. Owing to the decent financial performance, the company declared a fully franked interim dividend of 6 cents per share, up by 71.4% on pcp.


1H20 Financial Highlights (Source: Company Reports)

PME signs 5-year cloud-based platform deal with Nines: During the six months ended 31 December 2019, the company announced two key contract wins - Ohio State University wherein it signed a five-year contract worth a $9 million and contract of $6 million with Nines Inc for a period of 5 years. 

What to Expect: The company expects continued growth from existing clients and partners, duke and OSU & others in FY20. It also anticipates further upside with the adoption of VISAGE 7 open Archive and Enterprise Imaging. The company is strategizing growth from new product offerings and from extension to new geographical markets. 
Stock Recommendation: As per ASX, the stock of PME gave a return of 22.48% on the YTD basis and a return of 13.7% in the past one month. During FY19, net margin of the company went up to 38% from 29.4% in FY18. In the same time span, ROE of the company stood at 45.3%, up from 28.5% in FY18. Over the span of 4 years, the company witnessed a CAGR of 30.09% in revenue and a CAGR of 29.6% in gross profit. Considering the returns, improvement in net margin and ROE and decent growth opportunities, we recommend a “Hold” rating on the stock at the current market price of $26.310, down by 3.626% on 13 February 2020, owing to the recent release of its interim results. 

 
PME Daily Technical Chart (Source: Thomson Reuters)

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