On September 5 Australia's largest biotechnology company CSL Limited (ASX: CSL) completed its $500 million buyback announced in October last year.
For the first time since the 2009 financial year, the company has stated that it will not conduct a share buyback program for the upcoming year.
The CSL share buyback program has been incredibly successful and earnings accretive for long term investors. Since this cycle of buybacks commenced in June 2009, the company has bought back almost 158.9 million shares for approximately $7.85 billion. This has resulted in the number of shares outstanding declining from 599.2 million in 2009 to 453.3 million as at 30 June 2017.
While net profit after tax has only grown from $1.146 billion in 2009 to $1.739 billion in 2017, an increase of around 52%, earnings per share have ballooned from $1.71 in 2009 to $3.81 in 2017, a gain of about 123%.
Positioning for growth
The Melbourne-based company announced in August that it plans to redeploy its cash to finance capital expenditure of between US$900 million to $US1 billion over the next financial year instead of undertaking a further share buyback program.
The capex is aimed at expanding the company's fractionation capacity at Kankakee and Marburg, increasing the number of collection centres, as well as growing its capacity for manufacturing specialty products such as Haegarda and Berinert. A US$600 million private placement is also expected to take place in H1 2018.
In August, CSL also paid US$352 million for an 80% stake in Chinese plasma fractionator Ruide to establish a base in China.
The Chinese plasma collection and fractionation market was valued at US$3.3 billion in 2016, with a growth rate of ~15% over the last 5 years. It is the fastest growing immunoglobulin market and is only second in volume behind the United States. Demand over the next decade is expected to outstrip supply and CSL should be poised with its plasma centre expansionary plans to meet the growing demand of China's ageing population.
In July, CSL's Haegarda was launched with a lucrative 7 year orphan exclusivity granted from the Food and Drug Administration. Haegarda treats Hereditary Angioedema (HAE), a rare and potentially life threatening genetic condition that occurs in about 1 in 10,000 to 1 in 50,000 people. Management is bullish on Haegarda's impact for FY 2018 earnings.
Foolish takeaway
A company with a market capitalisation of ~$60 billion and earnings growth of double digits is rare on the ASX. The appreciating Australian dollar remains a concern given the amount of revenue derived offshore which might explain why the stock trades approximately 8% below the June high of $145 following the Aussie dollar's breakout.
Morningstar's analysts' estimates project CSL's FY 2018 earnings to be $4.47 a share which means the company trades at a forward p/e of about 30.
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