CSL A Defensive Buy Says Intersuisse

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This story features CSL LIMITED.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

While the Australian market has recovered most of its early losses in today’s trading it is still going through a correction phase as more and more views turn to the idea the US economy is in or about to enter a recession, with the earnings impact of this and the credit crisis being factored into investment decisions.

With this in mind Intersuisse suggests investors would do good to look at blood products group CSL ((CSL)), as the broker believes this is a defensive investment in these times of uncertainty.

This does not mean there won’t be growth, as on the broker’s numbers the company should be able to deliver plasma margins of 33% by 2010, up from 28% in 2007 and just 5% in 2004. Helping here will be the launch of its high yield IVIG Privigen in the US market, expected in March.

From an initial rollout of around one million grams this year numbers are expected to increase to nine million grams in 2009 and around 16 million in 2010, with the product likely to achieve a 20% price premium on the same input costs.

Growth may also come via acquisition as the company’s slowness with respect to its share buyback program has increased speculation of a deal, with Intersuisse favouring the protein therapeutic sector as most likely.

Another attraction of the group in the broker’s view is demand for its products is unlikely to be impacted by any downturn in the US economy given the health benefits of its Gardasil cervical cancer screen and the ongoing need for blood plasma, so there appears little downside risk.

On the broker’s numbers the company should generate a profit this financial year of around $672 million, increasing to 824 million in FY09 and up from 539 million in FY07.

In earnings per share (EPS) terms the broker’s forecasts represent outcomes of 122.1c this year and 148.6c in FY09, while Thomson One Analytics shows median EPS estimates of 124c and 159c, making Intersuisse’s estimates somewhat conservative.

The FNArena database shows an even split of five Buy and five Hold recommendations, with an average price target of $37.28. Thomson One shows a median price target of $38.86, while the shares today as at 2.30pm were up 17c at $35.75.

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