Pinned straw:
Quite interesting to see how hard retail went into CSL over the last year or so as the price fell. Especially on those big gap downs.
This has been such a high quality business for so long it is unsurprising.
Fantastic coverage of the CSL developments here on Strawman - I'm finding it more insightful than reading the AFR.
I've held CSL for nearly 14 years in my SMSF, returns have been positive but pitiful 3.5% pa, well below the target 10% annual return I set for all my holdings. As of 5 minutes ago I am no longer a shareholder - as others have pointed out, there are many rich pickings on offer in the market right now, and the prospect of meaningful growth (and share price recovery) in CSL is several years off, so it's time to move on.
Ok so we have some more explanation. I am not going to write a full report here, ill do that later. Writedowns, to be expected, weakness in various operations, to be expected. ill even accept the albumin swings. ill talk about the two areas that surprised me. Firstly, the issues in IG, from what i can recall, this is the first time CSL are coming clean with the story at Behring, and i do feel led down the garden path here. Strength in Behring is the reason i persisted in holding CSL. There were a couple of questions aimed straight at the inconsistency, if IG is such a strong market, as CSL said only at their investor day last year, and use terms like limited supply, but now we see, terms like well balanced market, and CSL needs to put more marketing and sales people on the ground to hold share and adjust its appraoch to tenders, where it appears CSL has been gamed. sounds inconsistent, and poor execution is about the best you can say about it.
The other surprise is keeping guidance, so profit falls in FH goes to profit growth of (ok only +4-7%) for the full year. CSL did provide a bridge from FH to full year with various inititaes and they have done well on cost out, and they point to positive initial momentum here, that guidance could be optimistic, as we have seen before, especially if it is based on share gains.
CSL is now priced for very low growth, but the profit growth is also low. luckily we live in a relative value world where there have been many stocks growing profitability strongly and sold down because of AI fears. ill lighten into CSL, and look to buy the saas, platforms, even insurance brokers (heaven forbid where will the fear end!!) if CSL can maintain guidance that will be a positive and i will reass.
Disappointing, but not a disaster (to me at least). Definitely not a time to sell IMO
The current half was obviously poor, with both revenue and profits down from PCP. Interestingly, full year guidance is much more positive. In order to achieve "2-3% growth in revenue and 4-7% growth in NPATA" for the full year, they will require a big turn around in the second half (obviously). The market clearly doubts they will be able to do it
With the current share price ($151), if they meet the mid-point of their guidance for the full year, they would be on a PE of 16. For me, this is the single most important fact to keep in mind. A lot of the stuff people are saying about CSL would be a lot more relevant if the PE was still over 40. At a PE of 16, you are not paying for perfection or high growth.
Lots of people are putting the boot into CSL today. Perhaps some criticisms of management are valid. I feel like people are comparing to the "glory" days, when CSL was a rapid growth company.
My argument would be that yes, CSL is no longer a rapid-growth company. This was always going to happen as it increased in size and market cap. However, it is no longer priced as a rapid-growth company. On a PE of 16, with a dividend-yield of well over 2%, CSL is well-priced for what it is likely to deliver over the long-term: solid high-single digit growth.
I like that they have increased the buy-back and maintained the dividend.
I would much rather own CSL at a PE of 16 than Coles at a PE of 26. Yes Coles pay a higher (franked) dividend, but CSL are ploughing back two thirds of their profits into research. Sooner or later, some of that will pay off
This episode makes me think back to one of Strawman's blog posts about conviction. I feel like this is a perfect example. Because I have a pretty good understanding (I think) of the company and high conviction, I can look through this current weakness and avoid panic