CSL - CSL Limited

[craft]

If one does read through CSL last report you'll discover they actually accepted Greek bonds as payment for outstanding payments. They already wrote off 25million into the last financial period on greek bonds. I havnt been able to determine if CSL is holding anymore european bonds, something I would dearly love to know. One has to wonder if there is a skeleton hiding in the closet ?

Another 15.248 Million on the 30 June balance sheet as ‘available for sale assets’ Thats probably all smoke by now.

Government trade and other receivables have jumped from 52.652 million in 2010 to 121.483 million in 2011. No idea how much of this is owed by Greece and the amounts are listed as neither past due nor impaired. Time will tell.

CSL total days receivables are at 60.5 days and they have 87.553 Million past 90 days with 22.891 of that provisioned for as doubtful. Not particularly tidy really.

 

[skc]

If one does read through CSL last report you'll discover they actually accepted Greek bonds as payment for outstanding payments. They already wrote off 25million into the last financial period on greek bonds. I havnt been able to determine if CSL is holding anymore european bonds, something I would dearly love to know. One has to wonder if there is a skeleton hiding in the closet ?

All the European banks don't have to write it down...it's all good.

You can't see me if I close my eyes...

 

[Tysonboss1]

What are peoples thoughts on CSL's recent and planned buybacks, It seems to me that alot of book value has been destroyed by the recent share buyback, and if the company starts another round of share buybacks it is going to see further reduction in the book value pershare.

The problem I have is that csl's assets are great and do produce a high return on capital employed, But their current share price is only justified if the cash generated by the existing businesses can be put to work generating furthre high returns.

If they pay out all their earnings as a dividend their existing businesses are only worth about $18.

The problem I see is the are currently much higher than $18, this could only be justified if as I said their retained earnings are being invested at rates above 25% and their for building book value and earnings atr a high rate.

However, Large amounts of those earnings are going to be used in future buybacks ($900M per year), which will be buying back shares at about 4 times book value.

What are peoples thoughts.

 

[Knobby22]

Buybacks don't destroy value, they increase earnings per share. As most of the earnings are foreign owned this is better than receiving returns in non franked dividends.

In my experience takeovers for takeover sakes tend to destroy earnings.

Secondly, they are spinning off a lot of money and a big proportion is going into research over long time frames, secondly they are building at Broadmeadows anther world plant which will increase profits.

They tried a takeover but the USA protection police didn't like a foreign stakeholder dominating the industry. I am sure McNamee is looking for bargains.

Waiting to pounce.

 

[Tysonboss1]

Buy backs do destroy value if the shares are bought back at a price that is to high.

The most recent share buy back actually reduced their book value pershare.

 

[Knobby22]

Buy backs do destroy value if the shares are bought back at a price that is to high.

The most recent share buy back actually reduced their book value pershare.

Good point, the next one will be better. EPS went up though.

 

[Tysonboss1]

Good point, the next one will be better. EPS went up though.

The earnings per share would have risen more if they just put the $900M in a term deposit,

By my calcs the price they pay / share would have to be around $18, for it to be in share holders favour.

 

[craft]

What are peoples thoughts on CSL's recent and planned buybacks, It seems to me that alot of book value has been destroyed by the recent share buyback, and if the company starts another round of share buybacks it is going to see further reduction in the book value pershare.

The problem I have is that csl's assets are great and do produce a high return on capital employed, But their current share price is only justified if the cash generated by the existing businesses can be put to work generating furthre high returns.

If they pay out all their earnings as a dividend their existing businesses are only worth about $18.

The problem I see is the are currently much higher than $18, this could only be justified if as I said their retained earnings are being invested at rates above 25% and their for building book value and earnings atr a high rate.

However, Large amounts of those earnings are going to be used in future buybacks ($900M per year), which will be buying back shares at about 4 times book value.

What are peoples thoughts.

Share buybacks don’t create or destroy wealth but they do redistribute it. If a share buyback is done at a price below the fair value of the business wealth is transferred from those who sell to shareholders who continue to hold. If the buyback price is above fair value the wealth is transferred from continuing shareholders to those selling.

When calculating the growth portion of fair value you should be looking at return on incremental capital. As you are alluding to CSL are utilising a lot of their incremental capital at a very low return by buying back their shares at current prices. If you are not recognising this in your valuation calculation because you do something oversimplified like assuming growth = retained earnings and valuing it on a multiple of historical ROE then you will get a higher valuation then is appropriate.

I think CSL fair value is lower than current market value so sellers got the best deal at the expense of continuing holders from the last buyback and it will probably be the same for the next. This has an iterative impact of lowering the fair value even further.

If you wouldn't buy at a given price - you certainly don't want a company you hold buying either - Its economic impact is really no different, somebody else gains because you pay too much or somebody pays too much on your behalf.

 

[Tysonboss1]

I think CSL fair value is lower than current market value so sellers got the best deal at the expense of continuing holders from the last buyback and it will probably be the same for the next. This has an iterative impact of lowering the fair value even further.

If you wouldn't buy at a given price - you certainly don't want a company you hold buying either - Its economic impact is really no different, somebody else gains because you pay too much or somebody pays too much on your behalf.

Do you think $18 / share is to conservative?

 

[craft]

Do you think $18 / share is to conservative?

Yes. But then I haven’t factored in anywhere near the annual rate of 900m per year buybacks. Have I missed some announcement?

However, Large amounts of those earnings are going to be used in future buybacks ($900M per year), which will be buying back shares at about 4 times book value.

This seams high to me. They couldn’t maintain and grow their business according to my estimates as well as maintain this level of capital return. If the 900M per year ongoing is right then my assumptions are wrong and so to will be my valuation.

I thought the last buyback of 900m was to return the money (capital management) not used but raised in preparation for the failed takeover of Talacris. They bought back those shares at an average of $34.50 which I thought was a bit rich but then again they raised at $36.75 which was even richer – so some latitude should be given for returning the funds through a buyback on that occasion. But the principal remains – It’s a bad move to buy back shares above fair value.

 

[Tysonboss1]

Yes. But then I haven’t factored in anywhere near the annual rate of 900m per year buybacks. Have I missed some announcement?



.

Thats I figure I heard from a commentator on TV. He said that the board would consider buy backs up to that level on a regular basis going forward, Maybe he is wrong, I will try and dig a bit deeper.

what price do you have in mind, PM me if you don't want to announce on the thread.

 

[RandR]

Thats I figure I heard from a commentator on TV. He said that the board would consider buy backs up to that level on a regular basis going forward, Maybe he is wrong, I will try and dig a bit deeper.

what price do you have in mind, PM me if you don't want to announce on the thread.

On page 135 of there full year results dated 17/8/11. It stated during 2012 they are planning on raising $1 billion of debt, which will be used to pay down $385 million of maturing debt, the rest may/may not be used for a further $900million share buy back to be undertaken in the 1st half of 2012.

The next two pages following that, pg 136 + 137 are also most interesting, because they provide the guidance for the effect of Forex movements for the company, something that will be key for this company over the next 12 months.

 

[craft]

On page 135 of there full year results dated 17/8/11. It stated during 2012 they are planning on raising $1 billion of debt, which will be used to pay down $385 million of maturing debt, the rest may/may not be used for a further $900million share buy back to be undertaken in the 1st half of 2012.

The next two pages following that, pg 136 + 137 are also most interesting, because they provide the guidance for the effect of Forex movements for the company, something that will be key for this company over the next 12 months.

Thanks for the source R&R. Appears a one off not ongoing. Seems a strange time to be increasing debt – you have to wonder if they are looking to support the share price or buyback because they feel the stock is undervalued?

what price do you have in mind, PM me if you don't want to announce on the thread.

Hope you understand - DYOR. The most you will get from me is a disclosure that I don't own any CSL shares at the moment.

 

[Knobby22]

So the A$ is dropping and CSL will now be making more profits.

Is it time to buy yet? I don't think so.

In my view, interest rates are not going to drop and when they don't the Aussie will rise again. I want a real good price so I am going to be patient.

That price will be above the dream $18 price Tyson wants though. If it actually got to that price I would probably borrow on the house, but if it did happen we would probably be in a depression.

 

[Tysonboss1]

That price will be above the dream $18 price Tyson wants though. If it actually got to that price I would probably borrow on the house, but if it did happen we would probably be in a depression.

It's not a dream price, Thats what it would be worth if it paid out all it's earnings as a dividend or worse as over paid buy backs, and reinvested little to grow earnings per share.

As I said earlier, it only has $8.96 of equity per share and that equity earned $1.73 which is about 20%. If your happy with a 10% return you can double the price you pay for that equity to $17.92.

But they don't Pay out all earnings they retain some which increases equity pershare and earnings, So if you believe those earnings that are retained will be invested and earn high returns say above 20% you can pay more than $18.

But thats why I was questioning what the were doing with the retained earnings, if they end up buying back shares at a high price it will not grow earnings at a high rate and will decrease equity.

 

[Knobby22]

It's not a dream price, Thats what it would be worth if it paid out all it's earnings as a dividend or worse as over paid buy backs, and reinvested little to grow earnings per share.

As I said earlier, it only has $8.96 of equity per share and that equity earned $1.73 which is about 20%. If your happy with a 10% return you can double the price you pay for that equity to $17.92.

But they don't Pay out all earnings they retain some which increases equity pershare and earnings, So if you believe those earnings that are retained will be invested and earn high returns say above 20% you can pay more than $18.

But thats why I was questioning what the were doing with the retained earnings, if they end up buying back shares at a high price it will not grow earnings at a high rate and will decrease equity.

Thanks for your reasoning.
The interesting thing is as the $A drops and foreigners try to pull the money out of this country, CSL sp should drop further even as the profits rise due to the $A falling. I would love it if we did get to your price.

 

[Tysonboss1]

The interesting thing is as the $A drops and foreigners try to pull the money out of this country, CSL sp should drop further even as the profits rise due to the $A falling. I would love it if we did get to your price.

Yes, If they did get to $18 I would be buying some, But remember I only said that was their value if they were not significantly growing earnings, But they probably will, and as you have pointed out their may be some artificial earnings growth from the lower australian dollar if we do indeed weaken, I am no currency expert though so I have no idea on that other than to say their will probably be both good and bad currency movements in the future, So I will not put to much weight on that in my valuation.

 

[Knobby22]

...and the price goes up (shrug)

 

[Tysonboss1]

...and the price goes up (shrug)

During the GFC CSL showed alot of strength, atleast compared to other stocks as if it was seen as a safe haven,

But, when their was a broad based recovery csl started to show weakness and hit lows as people left the safe haven for the other assets, It may be what is happening now.

 

[Not Rene]

A new share buy back announcement. Will it have the same effect as the last one? None whatsoever!