CSL Limited ( CSL)
Jason Fittler, Grow Your Wealth
CSL develops and manufactures vaccines and anti- venoms, but its primary revenue stream ( 96 per cent) is blood plasma and blood plasma derived products. The blood plasma product market has been dominated by three major players for the last 20 years, CSL being the largest.
For another competitor to enter the market would be very difficult. Collection requires an extensive network of facilities, multi- billiondollar plants and compliance with six separate regulators as well as a maze of patents.
Scale and years of R& D have given CSL the industry’s lowest cost base, allowing them to maintain high profit margins while dominating market share. CSL have been able to grow earnings consistently over the last decade and average a return on equity of over 40 per cent.
Given the defensive nature of core earnings and CSL’s consistent track record, CSL justifiably trades at a premium to the ASX ( P/ E 28x). Medical developments provide further potential for future upside. The recent dip provides a good entry point into a quality long term holding. We value CSL at $ 106.90, implying price upside of 22 per cent+.
CSL is a long- term growth story which is looking like good value at the present levels. It would suit value investors with a 5- year time frame. At the current price accumulating a position in this company makes sense.