With the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) up 10.5% this year, blood plasma therapeutics group CSL Limited (ASX: CSL) has outperformed the market by an impressive 37%.
I’m certainly not the first to say it, but CSL is a truly great Australian success story. From humble beginnings, the government-owned Commonwealth Serum Laboratories has grown into a world leader in the development and manufacture of plasma-derived therapies that treat disorders such as haemophilia and produce vaccines that prevent influenza and cervical cancer.
With operations in Europe, USA, and Australia, CSL sells into all major markets, including emerging markets such as China where it is the leading supplier of albumin, a critical component of blood plasma. As a global business, CSL earns the majority of its money in foreign currency, and therefore the reported results are exposed to fluctuations in exchange rates. As is becoming common practice with Australian domiciled multi-nationals, CSL will begin reporting in US dollars for the 2013 financial year to counter this issue.
CSL also announced in early August that long-serving CEO Dr Brian McNamee would be retiring at the end of the 2013 financial year. McNamee has played a pivotal role in the success of CSL but thankfully the company has in place a depth of talent and a planned transition to the incoming CEO, Mr Paul Perreault, who is an experienced senior member of the management team.
There are a number of catalysts that have likely helped the re-rating of CSL this year. Capital management initiatives such as the continual buying back of shares are one. With the latest $900 million buyback 77% complete, the full-year results presentation provided the opportunity to announce that a further $900 million buyback was being considered.
However, the primary catalyst for the rising share price has most likely simply been the stellar results CSL continues to produce.
CSL is an example of the returns an investor can enjoy buying a great business at a reasonable price. Remaining alert for any short-term issues which can lead to a temporary drop in share price will help Fools seize the opportunity to buy into wide-moat businesses such as CSL.
CSL shows that investing in a successful biotech company can do wonders for your wealth. It is always difficult to pick the winners early.
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Motley Fool contributor Tim McArthur doesn’t own any of the stocks mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.