The Motley Fool

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.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you’re expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you’ll be sorely disappointed. Not only are their dividends growing at a snail’s pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these “new breed” blue chips couldn’t be greater… especially the very real prospect of significant share price gains, something that’s looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

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.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.