The share price of biotechnology company CSL Limited (ASX: CSL) reached a record high of $227.40 during Tuesday’s trading session. The company’s share price has now risen 12% following the release of its full-year result for FY18 on August 15.
With CSL trading at all-time highs, is it time for investors to buy shares in one of Australia’s best blue chips?
Another brilliant year
For the year ended 30 June 2018, CSL delivered a 14% increase in revenue to US$7,915 million with EBIT margins climbing from 25.6% to 30.1% resulting in net profit after tax growth of 29% to US$1,729 million.
At constant currency, CSL posted a net profit of US$1,713 million. This exceeded the initial FY18 guidance provided last August of US$1,480 million to US$1,550 by 13% at the midpoint.
The main catalyst for the great result was the company’s plasma therapies division, CSL Behring. The division saw product sales up 11% to US$6,678 million and EBIT margins increased from 32.5% to 34.1%.
The standout performers were from Privigen and Hizentra in immunoglobulins and the recently launched Haegarda in specialty products. Haegarda is used to treat hereditary angioedema and has already taken ~50% of the U.S. prophylactic market share. According to CSL, Haegarda has been the most successful chronic drug launch in the United States in the past 5 years.
Pleasingly, CSL’s vaccine division Seqirus managed to deliver its maiden profit with EBIT of US$52 million compared to last year’s EBIT loss of US$179 million.
At constant currency for FY19, CSL has guided for revenue growth of 9% and net profit after tax to increase by 10-14% in the range of US$1,880 million to US$1,950 million. In FY18, CSL delivered underlying earnings per share of US$3.79(A$5.16). Using the midpoint of 12% net profit growth in FY19 would see CSL deliver earnings of around ~A$5.78 at current exchange rates, and prices the stock on a forward valuation multiple of 39.
This is a higher forward valuation multiple than CSL has traded for in recent times and reflects the market’s current bullishness towards growth stocks in particular. CSL is a great business that warrants a material premium to the general Australian market, similarly to other healthcare companies such as Cochlear Limited (ASX: COH) and ResMed Inc (ASX: RMD).
However, the fear of missing out can lead to investors bidding up prices to overbought levels and overpaying for an otherwise fundamentally sound company whose bullish thesis remains intact. Thus, I am not a buyer of CSL shares at current prices and view the company as a hold from a valuation perspective.
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Motley Fool contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. 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.