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Why the CSL Limited share price is up 5% as profits jump 35%

The CSL Limited (ASX: CSL) share price rose 5% to $148.88 after the company reported a 35% increase in profit this morning. Here’s what you need to know (all figures in USD):

  • Revenue rose 13% to $4.1 billion
  • Net profit after tax rose 35% to $1.1 billion
  • Earnings per share rose 36% to $2.40 per share
  • Dividends increased from 64 cents to 79 cents per share
  • Strong sales growth across major product lines and a number of new products approved in the half
  • Outlook for continued strong sales, although second half profits may be lower due to the seasonality of the influenza business
  • Plasma supply remains tight, CSL likely to benefit from new plasma collection centre openings

So what?

CSL continues to hit its stride with another set of very strong results, currency headwinds notwithstanding. With a number of new products coming to market or recently approved, and new plasma collection centres opening, CSL appears primed to continue growing earnings in the near future.

Vaccine maker’s Seqirus results continue to improve, with production at its Holly Springs culture facility up fourfold and revenue rocketing. Seqirus is expected to be loss-making in the second half due to flu seasonality, as the first half is winter in the northern hemisphere.

CSL is also investing heavily in new R&D opportunities, including stem cell therapy and products that might aid the transplant process. Research & development (R&D) spending is expected to step up in the second half, which will likely result in a weaker second half from CSL.

Net debt increased to around $3.6 billion, up from ~$3.2 billion in the same half last year. CSL has a long debt maturity profile and pays a weighted average interest rate of 2.7% per year on its debt.

Now what?

CSL appears on a strong footing for the future and the company’s outlook appears positive. It is widely acknowleged as one of the best companies on the ASX, and the primary concern to my mind is its valuation.

CSL is priced at around 31x annualised earnings, which is high even for a high quality business. I like the company a lot, but I’m not sure if today’s price is a standout opportunity. If I were to buy, I’d consider taking a small stake and adding to it during share price weakness – such as might occur after a weaker second half – or any market upsets.

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Motley Fool contributor Sean O'Neill has no position in any of the 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.

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