The last 12 months have provided investors in blood plasma and vaccine developer CSL Ltd (ASX: CSL) with outstanding returns.
CSL’s share price is up over 60% compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has climbed around 15%. The company’s long-term track record is stellar and the recent interim results were equally impressive and beat many investors’ expectations. Net profit grew 24%, while earnings per share leapt 30%.
Recent reports surrounding deaths in China from a particular strain of avian flu (a.k.a. bird flu) have put the spotlight back on CSL due to its important role as a major global supplier of influenza (flu) vaccines. In reality there is not yet any confirmation that the virus has mutated into something that would warrant the development of a vaccine, however it is a reminder of the pivotal role CSL’s products play within the global health industry.
This pivotal position sees CSL spend $368 million per annum on research and development (R&D). An investment of this size in R&D helps lengthen and improve existing product lines, expand therapies into new markets, and discover new medicines. It also gives the company the means to respond to critical situations when they arrive, such as the swine flu pandemic which occurred in 2009 and 2010. For interested Fools, there is a wealth of influenza information available on the World Health Organisation’s website, including a regular global flu monitor report.
While we all hope there is no avian flu pandemic this year (or ever!), the ‘common’ influenza virus is always a threat – although in some years much more than in others. The northern hemisphere’s winter has just passed and the ‘flu season’ was thankfully very mild. As we approach the southern hemisphere’s turn, it is likely that Australia will also experience mild conditions.
In any case, winter is also a time for the common cold and a busy time for healthcare services. Healthcare businesses often provide solid, reliable, and defensive earnings to investors. Along with CSL, other listed companies which fall in to this category include Primary Health Care (ASX: PRY), Ramsay Health Care (ASX: RHC) and Sonic Healthcare (ASX: SHL).
It is always important to keep things in perspective. CSL’s long term success won’t be decided by whether or not it has a short-term windfall from producing a bird flu vaccine, however the company is very high quality with a substantial moat around it, putting it in a commanding position to create long-term value for shareholders.
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