As a long-term investor, it is incredibly important to see companies, such as CSL Limited (ASX: CSL), and its shares, as more than flickering ticker codes with an erratic dollar value. Instead, these listed entities are collections of people with a shared mission.
Part of what makes a company valuable is its mission and what it does to work towards that goal. That being said, it can be easy to lose sight of what a company does that provides shareholders with a return. Even for a company with the stature of CSL, Australia’s second-largest listed company by market capitalisation, understanding the money-making business activity can be lost in the pile of information.
For this reason, we’ll be diving into how CSL shares actually earn their keep in the present day.
How does CSL make money?
Although CSL isn’t quite a ‘household’ name, its products have touched the lives of many people. The company’s roots stem all the way from 1916 when it was known as Commonwealth Serum Laboratories, an Australian government-owned entity involved in vaccine manufacture.
While its history is extensive and incredibly interesting, spattered with a long list of monumental breakthroughs in modern medicine, we are here to cover how the CSL we know today makes money.
The publically-listed and privatised version of CSL that Aussies invest in these days has two distinct business operations. These two businesses include CSL Behring and Seqirus.
Firstly, CSL Behring is a provider of medicines to treat people with rare and serious diseases. These treatments are across multiple areas of immunology, haematology, cardiovascular, and transplant therapeutics. In terms of how much money the Behring business ‘Beh-rings’ in, it is more than 80% of the company’s US$10.3 billion of annual revenue. This is derived through the sale of its broad range of products including tetanus shots, coagulants, etc. to more than 100 countries.
Secondly, the Seqirus side of CSL’s operations is focused on influenza vaccines. In fact, Seqirus is one of the leading providers of ‘flu shots in the world. However, investors in CSL shares mightn’t know it manufactures a unique range of products made in the national interest. These products include antivenoms and Q fever vaccines.
In FY21, Seqirus pulled in total revenue of $1.736 billion, an increase of 30% year on year. This was due to the strong demand for CSL’s influenza vaccines to reduce strain on hospitals during COVID-19.
How have CSL shares performed?
The CSL share price has been a solid performer over long time periods. For example, in the last five years, the CSL share price has gained 208%. This represents a compound annual growth rate (CAGR) of 25.28%, which far outpaces the S&P/ASX 200 Index (ASX: XJO) CAGR of 7.22% in the last five years.
However, CSL returns have been more modest over the past 12 months. In the last year, the CSL share price has climbed 6.18% higher, significantly lower than its historical performance.