The bargain hunter’s guide to CSL Limited

CSL Limited (ASX: CSL) is often touted as the best company on the Australian Stock Exchange. Whether true or not, it is a very good company because it has great economics, a solid balance sheet, and its business is defensive, critical to patients (often literally life-saving) and usually paid for at least partly by government funding.

The result is a cash-generating machine that reinvests heavily into Research & Development (R&D) to develop more important treatments. For reasons of length it’s impossible to go into much detail about everything CSL does, but here’s a quick overview:

Products are used for:

  • Bleeding disorders including haemophilia
  • Primary and secondary immune deficiencies (immunoglobulin)
  • Neurological disorders
  • Respiratory diseases including emphysema
  • Vaccines including influenza (CSL is now the second-largest flu vaccine producer globally)
  • To prevent and treat infections, plus reverse the effects of warfarin (a blood thinner)

As you might suspect from reading that abbreviated list, blood products are most of the show and accounted for $2.54 billion, or 83% of sales (denominated in US dollars) at the most recent half yearly report. $519 million, or 16.9% of sales came from the ‘Seqirus’ business, which is a combination of CSL’s own vaccine lab and the recently acquired Novartis influenza business. The remaining insignificant revenues come mostly from licensing fees.

Of its revenues, approximately 10%, or $283 million went into research and development (R&D) in this half. 10% may not sound like a lot, but that amount of money spent in six months is enough to keep half a dozen (or more!) junior biotech companies in business for a year. Think of that, if ever you’re tempted to take a bet on a struggling biotech hopeful.

CSL also has a rock solid balance sheet, with over a $1 billion dollars in cash, $1.9 billion in inventory, and $3 billion in debt. CSL also paid just $33.6 million in ‘finance costs’ on its debt, which (if doubled to approximate full-year costs) suggest the interest on its debt could be below 3%.

It’s a great financial position, while the high R&D spending also funds a long list of ‘would-be’ new products, such as the AFSTYLA anti-haemophilic that was recently approved by the US Food and Drug Administration, or Phase II and Phase III trials into Hereditary Angioedema (HAE).

It’s a potent combination that’s delivered market-thumping returns to shareholders, who are up around 250% in the last five years. There’s plenty more to know, including the size of CSL’s target markets and the exact breakdown of its earnings by geography, but that should give you a brief overview of what is definitely one of the better businesses on the ASX.

Discover 3 more 'forever' stocks, just like CSL

Forget Medibank Private or Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.