MENU

CSL Limited: Here’s what I would pay for the shares

CSL Limited (ASX: CSL) develop and deliver innovative biotherapies and influenza vaccines.

Shares of CSL currently trade at around $158– an increase of 24% over the previous twelve months. The 52 week high is $167.66, and the 52 week low is $119.01. With earnings per share of $3.81 in 2017, shares are currently trading at a price to earnings ratio of 41.5 based on 2017 earnings. Analysts have forecasted earnings of $4.67 per share in 2018, an increase of 22% on the previous 12 months. This puts the current share price at a price to earnings ratio of 33.8 based on forecasted 2018 earnings.

In the last 10 years, CSL has grown its book value at an annualised rate of 6.6%. The current price to book ratio is over 17. Over the same period, CSL has grown earnings at an annualised rate of 13%, and its cash flow at 11.9%.

Over its last 5 financial reports, CSL’s return on invested capital has ranged from 25.5% to 39.3%, and has averaged 33%. This represents a very strong return over that period.

In 2017, CSL paid an unfranked dividend of $2.025.

So what are the shares worth?

According to its 2017 financial report, CSL held $5.01 billion in interest bearing debt, and $1.1 billion in cash and equivalents. At a current market cap of $70.57 billion, CSL’s enterprise value is around $744.85 billion. With earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.51 billion, the company’s enterprise multiple is around 29.7. An enterprise multiple of 10 would be a fair (or in this case, cheap) price to pay, and this would necessitate a market capitalisation of $21.18 billion, and a share price of around $47.00.

A discounted cash flow model using the historical growth rate in cash flow as the growth rate for the next 10 years and then a 2% growth rate thereafter, capital expenditures equal to those in 2017, and a required return of 10% per year places the intrinsic value of the shares around $80.00.  This is, of course, heavily dependent upon the growth rate and your required return. A required return of 15% would place the intrinsic value at $56.00. For CSL, however, the growth rate is also important. If you assume that the growth rate for the next ten years to be equal to its average return on invested capital – around 25% – the intrinsic value of the shares could be around $225 at a 10% rate of return, and $150 at a 15% return.

FOOLISH TAKEAWAY.

I’m not convinced that a 25% growth rate is a prudent assumption. However, if it was then shares are looking fairly priced. Based on the above, I’d be a little more conservative and say that shares are probably worth somewhere between $60 and $80. However, the calculation of intrinsic value is not an exact science. Given the historical growth in book value and returns on invested capital, I’d be happy to buy the shares at around $80, but I’m not holding my breath.

Top 3 Growth Stocks To Buy In April

For many, blue chip stocks mean 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 2018."

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%.

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 Stewart Vella owns shares of CSL Ltd. 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!