CSL - CSL Limited

[dhukka]

Dhukka

To me eps is the real crux of a company, so you are right, it is intended however you still need to look at cashflow, debt, market competitors, long term factors etc. as a seperate exercise.

Knobby,

Without taking into account what percentage of earnings are retained and how much is paid out as dividends, changes in earnings earnings cannot accurately measure the change in the value of equity - which afterall is what you are trying to do. If you look at cashflow debt, competition and other factors how do you account for that in your valuation? Do you just adjust your assumed growth rate by an arbitrary number?

I disagree that you should not count dividends as it is double counting as a I valuation should reward the giving of dividends by a company as it is a gain you get in your hand rather than leaving it in managements hand. Maybe I should have put in a adjustment factor that depends on franking and reduces total value however in this case, dividends affect the valuation of CSL only marginally as they are so small.Knobby

I didn't say you shouldn't count dividends, dividends are a cashflow to the equity holder and therefore must be counted. I'm saying that your are double counting them. Earnings can only grow through the retention of previous earnings, then re-employment of those earnings and existing equity or by increasing return on equity.

By discounting the full value of eps of $4.41 you are assuming it is investment cashflow in the hands of the equity holder - which it is if the equity holder sells his/her shares in that year (which I think is what you are assuming?)
But then you value the dividends again separately in effect double counting them. However since you are discounting eps and not cashflow you may already be be dedcuting enough from cashflow to compensate for double counting the dividend.


Look at it another way -it's the same as valuing a bond paying 8% by counting the interest payment as a cashflow to the investor and then assuming it is reinvested again which of course it can't be if its paid out already.

Using 4% growth just bacause it is standard practice is silly, CSL is a high growth company. Assuming 20% growth and therfore a PE of 20 may be too low but I am being conservative. We all know the market doesn't price for indefinitely but for one or two years in advance.

I agree CSL can probably increase earnings at the rate you suggest over the next 2 1/2 years however I read your original post as assuming that CSL can grow at 20% indefintely into the future. If that is your assumption it is very far from conservative.

 

[Knobby22]

Knobby,

Without taking into account what percentage of earnings are retained and how much is paid out as dividends, changes in earnings earnings cannot accurately measure the change in the value of equity - which afterall is what you are trying to do. If you look at cashflow debt, competition and other factors how do you account for that in your valuation? Do you just adjust your assumed growth rate by an arbitrary number?

In affect, yes but not the growth rate! I adjust the interest rate which is really the expected rate of return. In this case it is 8%, for a company with worse management, more competition etc. I will raise the amount substantially. For a small company with low liquidity it may be something like 30%! It is really risk analysis. This is a skill that needs to be developed, but it is a valuable skill.

The intangibles like competition are very important. One of the things I like about technical analysis is that it is more concerned about the future. These skills can also be supplied through fundamental analysis by looking at the strengths and weaknesses of a company and adjusting your valuation accordingly. In CSL's case you are saying it is well led, has demonstratable advantages, has blue sky that can be very blue. It should be treated more favourably!


Dhukka

I will give you a challenge. Look at RDF and give me a valuation. And I will then give you one and we can compare results.
RDF results are out tomorrow and if the margins are improving this could be a killer company.

Knobby

 

[dhukka]

OK Knobby. I've never looked at this one before but here is my valuation before tomorrows result. Currently generating an uninspiring 14.6% return on equity. Of course if margins improve as you suggest the valuation will go up but at the moment I can get no more than $0.75 - $0.80 cents a share.

 

[Knobby22]

I only get $1.40 but there has been a great increase in contracts the last six months. Better change to RDF thread (thread drift).

 

[Gurgler]

the company is starting to get near my estimated value of $85 however I am hopeful to hear of some success on the new drug front and expect CSL to be worth $100 in a years time.

Knobby

Knobby - clicked over to $80 today. Read your impressive discussion with Dhukka (didn't understand it fully, but hey, not trained in that area!). There's quite a variation between your valuations. You still rate this as a $85 value target? In fact, this matches FN Arena's target of $85.21.

 

[Knobby22]

Knobby - clicked over to $80 today. Read your impressive discussion with Dhukka (didn't understand it fully, but hey, not trained in that area!). There's quite a variation between your valuations. You still rate this as a $85 value target? In fact, this matches FN Arena's target of $85.21.

It's all a bit subjective. I have not allowed much for blue sky as it is unknown and I am trying to be consevative. I would not be surprised to see the price continue to rise as we are in a strong bull market.

I heard McNamee on the weekend on the ABC. He has two drug programs trials after taking over Zenyth (which I also used to own). One is for asthma, the other for athritis. The trial results should be due within a year. If either is good, watch out! Otherwise CSL looks fully priced at present, though not overpriced.

 

[investforwealth]

CSL was the first stock I ever bought... a few days before the recent correction hit. Thought about dumping it when i was down a few grand, but very glad I didn't... how much has it soared in the last couple of days.

I hadn't expected this sort of price action for at least six months, but you won't hear me complaining. It's given me a 7.8% return on my investment in less than four weeks. Now my only regret is that I only bought 50k worth and not 500!

There seemed to be a decided lack of sellers on this stock today, but my concern is that all of you who got in around $15 or even $50 are thinking it might be time to take profits and start dumping them.

Anyone got any opinions on where it might end up next week?

 

[Prospector]

I bought in at around $37 and thought about selling a few weeks ago. I have decided not to sell, maybe ever, as I feel this company really still has a long way to go. One thing which has always puzzled me is the way the price will rise $3 a day, with no announcement and barely a ripple in the media; wheras a share like Telstra will increase 3 cents and everyone talks about it.

 

[vishalt]

I bought in at around $37 and thought about selling a few weeks ago. I have decided not to sell, maybe ever, as I feel this company really still has a long way to go. One thing which has always puzzled me is the way the price will rise $3 a day, with no announcement and barely a ripple in the media; wheras a share like Telstra will increase 3 cents and everyone talks about it.

Yeah it's so true hey, but I guess not as many people own CSL as they do Telstra so it gets less attention, but, who cares?

Pharmaceuticals are insanely good performers in a bull phase!

Personally i'm very interested in seeing which Australian stock will reach $100 first! PPT @ $76, MBL @ 81, CSL @ 83, COH @ 63, RIO @ 77..

very interesting times

 

[investforwealth]

Despite just about every analyst in the country being bearish on this stock and rating it a SELL, it just continues to smash through previous highs. Looks like it could win the race to $100 a lot sooner than anyone thought possible if it continues this trend. I took a nice profit out of it a while back, but soooo wish I'd hung on now!

 

[Knobby22]

True, I sold 1/13th of my holding and regret it.

 

[Gurgler]

From earlier this week:

CSL Should Crack $100 This Year, Says Tech Wizard
FN Arena News - April 23 2007


The Tech Wizard has observed shares of blood provider CSL (CSL) have been running up the top Bollinger band over the past six month. He explains this is a sign of strong buying in the market.

Supported by ongoing equity broker upgrades and a bullish MACD indicator the outlook for CSL shares continues to look positive, he believes.

The Tech Wizard believes the shares should be in a position to crack the $100 level at some point this year.


At that time, shares in CSL were higher - the stock was up $1.92 or 2.3% to $86.92.

Today, they cracked 90.08; now sitting at $90.01.

 

[Prospector]

Still holding......and watching the race with MBL to crack the ton! And bought CSL and MBL in the $30's

 

[Gurgler]

What a difference a week makes! Last Tuesday the sp was 96.50 and they were talking about the race to $100 with MBL and RIO. Only the later is still in the ballpark.

Mind you, Prospector, at you purchase price I guess you're unfazed.

 

[Prospector]

True gurgler, but still dont like to see profit disappearing
Ah, not enough letters; is there a reason why this is happening?

 

[purple]

all quiet on the CSL front? looks like they're heading for the ol' breakout signal..

Bloomberg did a compilation of analysts' report on a couple of companies. CSL was mentioned with 12 analysts covering it to give an average target price of $95.94 in about 6-18months.
http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=CSL:AU&sid=a1gg.tyOTehI

 

[purple]

been trading in and out of CSL in the past.

but right now the controversy building on its Gardasil drug has me a bit edgy and wanting out.

 

[Gurgler]

Purple: what are you basing these current reservations on. All the news I have found seems to be 2 months old. Have you come across more recent developments?

That pennant of yours appears to be heading to a breakout: you seem to be suggesting downward. Why?

 

[purple]

Gurgler,

nope, the breakout i suggested is actually up. if you read my previous post, I noted that

"Bloomberg did a compilation of analysts' report on a couple of companies. CSL was mentioned with 12 analysts covering it to give an average target price of $95.94 in about 6-18months."

tha'ts about a 6% share price target increase.

it's because I can't find any recent updates to the Gardasil stuff taht I'm posting to see if anyone has any news/insights on it.

 

[Gurgler]

Sorry, Purple, I didn't read enough before I posted. Yes, lack of news is a little unsettling - but maybe no news is good news(I'm a 'glass half full' person!)