CSL has more upside..., page-227

Courtesy Chris Hall from Ellerston Capital

Earnings upgrades justify the high sticker price

Taking a longer term perspective, CSL will continue to deliver strong compounding earnings and dividend growth for years to come. While optically, the stock may look expensive looking 12 months ahead (CSL is trading on a PE multiple that is greater than two standard deviations above its long-term average), the reality is that earnings upgrades continue to occur for this stock on a frequent basis as fundamentals continue to improve. Also, the compounding dividend effect is stark, with A$ DPS growth of 18% for this half result. I see CSL as a core, long-term holding in any Australian equity portfolio.

A strong position for growth

CSL remains in a strong position to continue its growth trajectory for some time. A favourable industry structure in IG, which sees demand continue to exceed supply on the back of increased disease awareness and improved diagnosis, increased usage of IG for chronic therapies and expanding usage for SID, provides a strong revenue tailwind. Albumin one-off impacts from a changing distribution model in China will abate and see underlying growth re-emerge in this product going forward whilst Seqirus will continue its meaningful contribution.

The key catalysts for continued sustainable growth for CSL centres around continued expansion of plasma collection centres, maintaining a double digit R&D spend as a percentage of revenue in order to provide continued product development in plasma, recombinants, cell & gene therapy and influenza vaccines. There will be great focus on the phase 3 trial outcome of the CSL 112 products (cardiovascular, coronary focus). While there are a number of competitive threats on the horizon, CSL has regularly faced competitive challenges and has a well-deserved reputation for developing or finding new sources of income to support earnings growth, along with the ability of management to continue to upgrade earnings guidance for years to come.