CSL Limited

Decent Growth in NPAT:CSL Limited (ASX: CSL) is in the business of research, manufacturing, development, marketing and distribution of biopharmaceutical and allied products. The market capitalisation of the company stood at ~A$112.73 Bn as on 16^th October 2019. When it comes to financial performance, the company stated that FY19 has been a strong year with reported net profit after tax of $1,919 Mn with a rise of 17% at CC basis and revenue witnessed an increase of 11% at CC basis. This primarily implies (1) continued strong growth in immunoglobulin and albumin therapies, (2) high patient demand for specialty products Haegarda & Kcentra,and (3) successful evolution of the haemophilia therapies portfolio.

On the operational front, the company stated that its largestfranchisee, the immunoglobulin portfolio, has been performing well, with sales growth of 23% and 22% in Privigen® and Hizentra®, respectively.CSL added that its business of Seqirus influenza vaccines has been delivering on strategy and is well-positioned in the market place with a production process innovation and differentiated product portfolio. In the second half of FY19, the Albumin sales into China made a strong resurgence. The global albumin sales witnessed a growth of 15% against the prior year. The following picture depicts an idea of dividend dates for the financial year 2020:


Key Dividend Dates (Source: Company Reports)

What to Expect:  The company stated that the demand for its plasma and recombinant products continues to be decent. It anticipates to again outpace the market in growing the plasma collections and plan to open approximately 40 new collection centers in FY20. It added that Seqirus is anticipated to continue to perform well and deliver in accordance with the prior guidance, benefiting from product differentiation and process improvement. The company expects net profit after tax for FY20 to be in the ambit of around $2,050 Mn - $2,110 Mn at a constant currency basis, which represents a growth in the range of 7-10% in comparison to FY19. This growth considers the one-off financial headwind of transitioning to a new model of direct distribution in China. The company’s focus for the long-term revolves around the strategic pillars, i.e., (1) people and culture, (2) growth, (3) efficiency, and (4) public health.
 
As previously announced in June, the company would be transitioning to a direct distributor model in China, taking the distribution into line with its global operating model for major markets. This will have a one-off financial effect on FY20 albumin sales, which are anticipated to reduce by around $340 Mn - $370 Mn.

Stock Recommendation:The asset to equity ratio of the company stood at 2.35x in FY19 as compared to the industry median of 1.61x. On the valuation front, the company has a price to cash flow per share of 46.44x against the industry average of 29.39x. Moreover,it reported a higher EV/EBITDA of 27.7x and P/E of 41.12x as compared to the industry average of 3.6x and 12.6x, respectively, exhibiting that the stock is extremely overvalued. Coming to the stock’s performance, it produced returns of 12.21% and 27.03% in the time period of three months and six months, respectively. As per ASX, the stock of CSL made a 52-week high of $253.830 on 16 October 2019 and is trading close to it. Hence, in light of aforesaid facts coupled with stretched valuation and current trading levels, we advise investors to closely watch the stock at the current market price of A$253.000 per share (up 1.856% on 16^th October 2019) and wait for better entry levels.

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