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CSL Lifts Profit to US$1.38bn - What's Next for the Biotech Giant?

CSL Lifts Profit to US$1.38bn - What's Next for the Biotech Giant?
Aug 12, 2015 By Simon Herrmann

Biotech giant CSL Limited (ASX:CSL) announced strong full year results and revealed a staggering US$1.38bn profit. Sales revenue rose 2% to US$5.46bn and earnings per share (EPS) increased by 8% to US$2.92.

Whilst the results are certainly impressive, one-off costs and foreign exchange movements have negatively impacted CSL’s books in past financial year. On a constant currency basis and after adjusting for acquisition costs revenue rose 7% and NPAT even 10%.

CSL also announced a final dividend of US$0.66 per share which is approximately A$0.90 per share, a 39% increase to the previous corresponding period. The final dividend yields approximately 1% at the current price and is unfranked for Australian tax purposes.

The strong USD has negatively impacted results of Australian companies reporting in US Dollars, especially if a large portion of the income is generated outside of the US.

CSL hit the $100 mark earlier this month but retreated in the past few days. Today’s full year results announcement has triggered some selling, but not as much as some investors may have feared. As of 11:45am CSL was trading at ~$94.00, down 1.2% from yesterday’s closing price. CSL has significantly outperformed the ASX 200 in the past 12 months. The stock has gained 43% in the past 12 months and is up 8% year-to-date.

One of the operational highlights in the past financial year was the acquisition of Novartis’ flu business called influenza vaccine. CSL’s chief executive officer and managing director Paul Perreault comments on the acquisition: “CSL is now the second largest influenza vaccine manufacturer in the world – a sector we understand deeply.” He believes that the product has an “extensive reach” and positions the business “very well to compete globally”.

What’s next for the company?

CSL will continue to invest in research and development with the main aim to create shareholder value and further strengthen CSL’s global footprint. Management’s track record is strong as it seeks growth opportunities in line with the business strategy. The company expects similar growth during FY16, however currency headwinds may further restrict CSL’s earnings. The long-term balance of risk ratio appears even, however the stock price has gained significantly and needs to prove that it can sustain above the $100 mark over the medium-term. Capital growth will most likely slowdown in the upcoming 12 months compared to the past year as CSL transitions into a solid blue-chip stock rather than an aggressive growth play. We remain positive about the company’s long-term outlook, but we believe that challenges will increase going forward.

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Simon Herrmann Author: Simon Herrmann Aug 12, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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