CSL (ASX: CSL) is a $32 billion company that develops and manufactures vaccines and plasma protein biotherapies. The diverse range of products produced by CSL treat and prevent a range of human medical conditions, specifically the plasma-derived therapies used to treat bleeding disorders, infections and autoimmune diseases.
The life-saving therapies produced by CSL have obvious benefits to patients, and CSL’s intellectual property translates into a highly appealing investment proposition as well.
Global exposure and diversity
CSL has significant operations in Australia, USA, Europe, Asia and increasingly, China. In financial year (FY) 2013, CSL earned sales revenues of US $1.87 billion in the USA, US $150 million in Switzerland, US $740 million in Germany, US $630 million in Australia and US $1.56 billion in the rest of the world.
CSL’s products are critically important to peoples’ health and well-being, and coupled with the trend of a long-term rise in living standards which means access to essential medical treatments becomes more widely available, CSL stands to benefit from a general rise in living standards around the world.
What’s more, the company’s product range falls into 10 broad product groupings. This extensive portfolio of products not only provides shareholders with a diversified stream of earnings but also creates a significant number of potential growth channels.
The company recently stated that the board “will consider new capital management initiatives which may include a further share buy-back program of a similar amount to the current program.” This suggests a further AU $900 million may be committed to buying back stock in the near future.
While the average price of the buyback is of course important, the benefits to shareholders from buying back and cancelling shares is clear. Just as earnings per share (EPS) grew faster than profits in FY 2013, thanks to a decline in the number of shares outstanding, management is anticipating that in FY 2014, EPS growth will again exceed profit growth.
In FY 2012 the board declared dividends of US$1.02 — up 18% on the prior year. With CSL reporting its accounts in US dollars, one benefit of a strengthening US dollar against the Australian dollar is that upon conversion Australian shareholders receive higher dividends. For example, the declared US$1.02 dividend resulted in the payment of AU $1.056 of dividends – an increase of 27% on the prior year. With many economists and strategists forecasting a weaker Australian dollar going forward, this bodes well for shareholders receiving Australian dollar-denominated dividends.
CSL is part of a small band of health-related Australian companies that have achieved significant success on a global scale. Other companies to have experienced similar levels of success and recognition overseas include breathing device developer ResMed (ASX: RMD) and hearing device developer Cochlear (ASX: COH). Companies like these enjoy significant profit margins and high returns on equity, which makes them appealing investment candidates for long-term investors.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.