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31 Pages • Essays / Projects • Year: Pre-2018
1 Executive Summary CSL develops, manufactures, and sells biopharmaceutical mostly derived from immunoglobulins, a constituent of blood plasma. The compounds treat rare and fatal medical conditions involving the immune system. CSL has a narrow competitive advantage due to low cost of production, a global blood plasma distribution network, and superior intellectual property that allows innovative product development of high-quality therapeutic products for critical medical conditions. The biotechnology industry is expected to grow due to an aging global population, rise of tropical diseases and an increase use of biotech products in developing economies. The positive long term outlook for growth is expected to benefit CSL due to significant investment in R&D, specialty products and spare capacity. The company has maintained positive financial performance over the last 5 years, as evident from sound sales growth, outperforming competitors. It invests more in R&D than the median in the industry, which is expected to allow CSL to expand further with new products. Our analysis of historical accounting data did not reveal any attempts to manipulate earnings or accounting numbers. Management’s intended capital structure, which envisages the buyback of shares is expected to deliver more returns to shareholders. The stock, however, seems relatively expensive using forward valuation models. Our valuation of the stock uses DCF as the primary valuation methodology. Valuation via PE and enterprise values are used as check methodologies. We considered three DCF scenarios, a bear scenario, a base or expected scenario and a bull scenario. The stock price as at 12 May 2017 was $129 as compared to our fair value measure of $131.96. We consider the stock moderately under-valued and recommend BUY at this price. A fair value of up to $153.93 per share is supported by PE multiples. We recommend investors begins to REDUCE their holdings when the price approaches $153.93 and SELL at any price point beyond $161, which is the maximum fair value obtained using trading or EV multiples.
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