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How CSL Limited makes most of its money

Biotech titan CSL Limited (ASX: CSL) has been around for more than 2 decades, ever since it was sold to the public by the Commonwealth back in the 1990s. Since then, it has had its share of ups and downs – mostly ups in recent years.

The core business

CSL’s business is split into 2 main segments – CSL Behring, which manufactures plasma therapies, and the recently acquired Seqirus, a recently acquired vaccine business that is currently unprofitable.

CSL Behring contributes 99% of CSL’s Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA), and so it is useful to have a look at which products generate those sales:

source: Company report

Immunoglobulins (used for people with immune disorders) are the biggest seller, with CSL’s Privigen and Hizentra products among the big drivers of sales growth in recent times. CSL also operates a large and growing number of blood plasma collection facilities, which help ensure that the company can generate enough supply to meet demand. This has been a direct contributor to CSL’s recent growth, with competitors’ product sales reportedly constrained by a lack of supply.

In addition to new products being launched and old products expanded to new markets, the Seqirus vaccine business will be another important driver of growth in the future:

source: Company report

Seqirus is expected to double its total revenues by 2020 to US$1 billion, with 20% Earnings Before Interest and Tax (EBIT) margins. That alone should deliver an ~9% increase on CSL’s estimated 2017 EBIT. Combined with new products and registrations and growing sales from existing products, CSL has a fairly obvious pathway for growth over the next 5 years.

The company also continues to invest heavily in Research & Development, with 7% of sales ($614 million) being poured into research each year. Around 2/3rds of this is going directly into researching new products. While many potential products are in the early stages of research, the continued spending should lead to further sources of earnings growth in the future.

CSL has a long term track record of both developing new products, and enhancing shareholder returns through measure such as buybacks. I would not bet against it over the next 20 years.

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