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CSL announces $950 million buyback

Biopharmaceutical company CSL (ASX: CSL) has today held its Annual General Meeting, at which it announced the much anticipated decision to conduct a further $950 million on-market buyback of stock.

The buyback announcement  no doubt added to the spirits of an already happy AGM crowd given the share price has climbed 23% since this time last year, compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which is up 13%.

In relation to the buyback, the Chairman Professor John Shine stated that:  

“On 17 October 2012, CSL announced an on-market share buyback of up to A$900 million. This on-market share buyback was completed on 12 September 2013, with approximately 15.6 million shares repurchased. To date, as a result of this and previous buy-backs, CSL has repurchased approximately 22% of the Company’s shares on issue…..the Board has considered new management initiatives. Today, I am pleased to announce that CSL will conduct a further on-market buyback of up to $950 million, which we intend to complete over the next 12 months.”

The chairman also noted that the trading outlook was consistent with CSL’s previous expectations for 10% growth in net profit after tax (NPAT) for the financial year ending June 2014. The one change being that the recently announced settlement of US antitrust litigation will reduce reported NPAT growth to approximately 7%.

Yesterday, fellow healthcare company Cochlear (ASX: COH), which develops and manufactures implantable cochlear hearing devices, also held its AGM. It stated that it expected the impact of foreign exchange hedges and research and development spend to put short term pressure on margins, which will result in NPAT for FY 2014 being at a similar level to FY 2013, with a heavy bias to the second half.

Foolish takeaway

It is likely that many CSL shareholders will cheer the board’s decision to undertake another buyback, but Fools will of course know that buybacks are not always in shareholders’ interests. It is interesting to note that the chairman advised that the Board has considered new capital management initiatives” — presumably this would have included considering a conservative valuation of CSL. Shareholders are of course not benefited if a company buys back stock at a premium to intrinsic value.

The chairman also stated we intend to complete [the buyback] over the next 12 months”. It is interesting to note that he again makes no mention of price or value here, suggesting the buyback may continue no matter how high the share price goes over the next 12 months.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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