As I exit this morning's investor call, today I have exited my holding in $CSL.

Last year, following the SP plunge and the announcement of the transformation, I took an initial position in $CSL fully believing it to be undervalued, intending to add to my position as I gained confidence (or if the market continued to improve the opportunity from a value perspective!)

Today, I have reversed that decision, and exited completely.

First, let's be clear that this is still a strong company, throwing off US$1.3bn in operating cashflow, which was +3% on a CC basis.

And let's further be clear, that management are sticking to the guidance announced at the AGM, as below.

Others will no doubt give a more detailed assessment of the result, so I'll spare the details and get to the arguments that tipped me over the edge.

US Recovery - Not a Hope for Me to Invest In

The situation in the US is not good. The Trump-RFK regime are materially unwinding vaccination programs to the great detriment of health - young and old - in the US, particularly in vulnerable populations. Management spoke of their belief that stakeholder support to reverse policies is growing. While that's good, the current US Administration is proving itself resistent to influence and arguments based on fact and science, and if ever, when things are going badly create false realities, new scapegoats and double-down. My fear, is that US policy change is a FY29 improvement as a base case potentially not materially impacting results until FY30. While this was a definite risk on my radar screen at the time of the AGM, I have been aghast at what the US Administration are prepared to do to their own people, and their responses when things go wrong. I cannot see the "MAHA" agenda succeeding, and it will only be reformed when the leadership changes.

One Strategic Reset is Doable - But How Many Will We See?

My investment thesis was predicated on an aligned board and mangement team, a pre-requisite for a transformation to be successful.

Now we face a transformation program already in flight crafted by one CEO, now to be stewarded for one year by another CEO, before being handed off hopefully in FY27 to a third CEO. No matter how safe a pair of hands trusted lieutenant Naylor is, from my perspective that's 2 hand-offs too many. With each leadership change comes the likelihood of next level disruption, restatements of what can be achieved, and internal instability.

Not for me thanks.

$CSL is clearly not on the right track in the view of the Board. OK, they signed off the strategy, so all they could do next was agree to "retire" the CEO because they have formed the belief that he isn't capable. Which means that they failed first in their decision to appoint him as CEO in the first place, and then secondly, to endorse his transformation strategy. That now surely means that the entire Board is on notice. And so investors have to face the real risk that there is a revolt against the Board, and within the next 1-3 years there is further turmoil.

I'm not in a position to comment on whether McNamee and the Board made the right deicsion to "Retire" the CEO. But what I can say is that the leadership dynamics around this business are not setting up the company for success. It would be one thing if $CSL was firing on all cylinders and performing. It is not. There are political and regulatory challenges, there are problems with the strength of the new product portfolio, there is a major restructuring in train, and there are competitive challenges with existing products.

This is a business facing multiple challenges, with the real prospect of leadership instability for the next year or two, at least.

Not for me.

In restrospect, my decision to enter last year was not a sound one. At least it was only a tentative first step.

Today, I am reversing that tentative step and move back to the sidelines. I made a mistake. But it would be an even bigger mistake not to admit it.

In terms of valuation, it is entirely plausible to believe $CSL is now materially undervalued. I believe it probably is, although, as shown by @Strawman, the business is not cheap for one with questionmarks over its growth prospects in the medium term, as well as questions about the productivity of its R&D portfolio and spend. For me, the question is as much what is the pathway for that value to be realised and recognised by the market. And I just see too many risks around that to have any conviction. It is better to rip the bandaid off.

I'll further remark that the decision to sell (even at a sizeable loss) is a relatively easy one. Across my portfolio and watch list is a long list of other comanies whose share prices are beaten down way below my valuations. I've exhausted my cash resources buying into these ideas on the way down, and I can now look forward to putting my $CSL proceeds to work in places where I have a higher conviction.

Disc: Not held