One of the major investment themes at present is the ageing populations of developed economies. This offers an opportunity for healthcare companies such as CSL Limited (ASX: CSL), Ramsay Healthcare Limited (ASX: RHC) and Cochlear Limited (ASX: COH).
That's because in the last five years the ageing population of the developed world has contributed to a mid-to-high-single digit annualised increase in healthcare industry revenue growth. In CSL's case, I believe there is additional growth ahead.
Catalysts
By 2050, the number of people aged 60 or older will exceed the number of children for the first time in history. This means that demand for healthcare is likely to rise at a faster pace in the future. CSL is well-placed to take advantage of this through its geographical diversification across the major developed economies.
The approval of CSL830 could also benefit CSL over the medium term. This is a low volume subcutaneous and prophylactic version of its Berinert product. It is used to treat a rare condition called hereditary angioedema which causes painful swelling. It could be launched as soon as next year and I believe it has the potential to boost CSL's earnings.
CSL's influenza vaccine division will benefit from CSL's track record of optimisation programmes. It is on track to record sales of US$1 billion by 2020. Further, influenza vaccines offer a relatively consistent growth outlook. Each year, between 5% and 10% of the world's population contracts influenza. Forecast world population growth from 7.2 billion today to 9.7 billion in 2050 means that demand for influenza vaccines is likely to increase and provide CSL with growth opportunities.
Competitive Advantage
CSL has become increasingly cost competitive. It has developed manufacturing scale and its wide product range derived from plasma reduces its unit production cost. Further, CSL's vertically integrated operating model provides a barrier to entry which lowers its overall risk profile in my opinion.
Strong cash flow provides scope for rising investment in CSL's R&D. Although it spends a relatively low 7%-8% of revenue on product development each year, free cash flow of US$683 million last year means that this amount could be increased over the medium term. Additional borrowing could be accommodated on its balance sheet in order to fund further acquisitions. Or debt could be used to develop more collection centres to improve CSL's competitive advantage versus its sector peers.
Outlook
Due to a favourable demographic tailwind, CSL has a bright long term future. Its innovation means that new product launches could positively catalyse earnings. Seqirus offers growth as well as a relatively consistent earnings profile. Further investment in R&D is made possible by CSL's financial standing and its competitive cost base means that sales growth should easily filter down to bottom line growth.
In my view, now is the right time to buy CSL. And it could help you to make 100x your money, just as this world-famous investor has done since the age of 50.
