Wednesday, October 28, 2020

A Small Cap Equity holding: CSL Ltd. (CSL ADR, $105.04): “Can a global pandemic make you better off?” by: Andrew Duwa, AIM Student at Marquette University

CSL Ltd.  (CSL ADR, $105.04): “Can a global pandemic make you better off?”

By: Andrew Duwa, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


·      CSL Limited. (ASX: CSL ADR) CSL Ltd. is a biotechnology company focused on developing biotherapy vaccines. Currently CSL is one of the leading developers of COVID-19 vaccines, plasma therapy treatment, and anti-body treatments, along with sickle cell anemia treatment, kidney disease, allogenic hematopoietic stem cell transplant, and influenza vaccines. CSL operates out of Australia as a global. 


·      CSL’s major sources of revenue come from the United States (50.2% FY 2019), Germany (9.0%), and Australia (8.2%), with the United States being the only major contributor to the revenue to have a positive trend over the past 3 years. 


·      CSL spent $921.8 million in research and design from June 2019 to June 2020, with $482.6 million coming in Q1 and Q2 2020. 


·      CSL’s Net Income has steady, positive growth from 2016 forward with 2018 as an outlier where growth was 29.3%.

Key points: 

·      CSL’s CFO, David Lamont, has resigned effective July 1st, 2020. Lamont will be succeeded by Joy Carolyn Linton, formerly CFO of Bupa a health insurance company based in the United Kingdom. David Lamont resigned to take a position at another global company headquartered in Australia. This change in management should not have a substantial effect on the performance of the company but should be monitored. 


·      With recent news of struggles in other COVID-19 vaccine trials including the recent death of a volunteer patient in the AstraZeneca, the status of CSL’s COVID-19 drugs should be monitored closely. Currently CSL has not experienced any major roadblocks and all three of their products are in the Clinical Development stage but any stoppages like AstraZeneca is currently facing could be catastrophic. 


·      CSL has recently partnered with Biotest, BPL, LFB, and Octopharma for strategic development purposes to accelerate their COVID-19 plasma therapy treatment. Combining unique expertise with CSL’s ability to accumulate resources gives the group a major advantage in the development of this treatment over competition. 


·      CSL kicked off research on first the ever treatment for sickle cell anemia. Currently, all other drugs for sickle cell anemia are strictly prevention methods similar to HIV/AIDS options. The development and approval for this product would provide CSL with a major competitive advantage and the possibility of a competitive moat, depending on effectiveness, usage rates, and availability. 

What has the stock done lately?

CSL’s recent performance has been very inconsistent, attributed to the COVID-19 pandemic, riding delays and setbacks in the development of treatments and vaccines within the entire industry. The price has been relatively unchanged, ranging from $204.37 to $209.90, maintaining a general increase outside of a dip occurring in early October from an announcement that trial dosing for COVID-19 treatments were halted due to testing site challenges in Australia. 

1 month stock price chart

Source: FactSet

Past Year Performance: CSL’s value has increased by 19.40% over the past year but peaked at an increase in of 35.87% in March, the beginning of the COVID-19 pandemic. In the past year CSL continuously outperformed the benchmark, currently by about 1400 bps, which is astronomically high. Additionally, with a 52-week high range of $172.23 to $243.26, CSL’s stock has experience growth but still has upside left. 

1-year Stock Chart vs. Benchmark

Source: FactSet

My Takeaway

CSL Ltd. has positioned themselves well by maintaining existing projects while also working on innovative solutions for the COVID-19 global pandemic. Even amidst a CFO change, CSL has continued to develop innovative products combating the current global pandemic and other life changing diseases. With multiple potential breakthroughs and a combination of resources with some of the top experts in the industry it is extremely likely that one will be a homerun. This makes CSL Ltd. much better off, resulting in an increase in price.