At time of writing the share price of CSL Ltd [ASX:CSL] is up more than 3%, trading at $290.14.
In a topsy-turvy year, the CSL share price is significantly down from its pre-COVID levels, but is snapping a recent downtrend:
We take a quick look at the highlights from their most recent results, the CSL dividend distribution and the outlook for the CSL share price.
Highlights from CSL results and dividend
Here are the key bits from today’s announcement:
‘• CSL delivered a strong first half result for 2021 with reported net profit after tax of $1,810 million, up 44% at CC2 reflecting:
‘• Solid growth in our core immunoglobulin portfolio led by HIZENTRA®
‘• Successful transition to own distribution model in China
‘• Strong growth in the leading HAE product HAEGARDA® o Exceptionally strong performance by Seqirus o CSL’s diversified portfolio and resilient business model in the midst of COVID-19 pandemic
‘• Full financial recognition of contracted income for UQ COVID-19 vaccine in first half, after program termination
‘• Earnings per share $3.98, up 44% at CC2
‘• Interim dividend3 of US$1.04 per share, up 9% o Converted to Australian currency, the interim dividend is approximately A$1.34 per share down 9%
‘• FY21 net profit after tax is anticipated to be in the range of approximately $2,170 million to $2,265 million at constant currency’
What to make of all this?
Well for one, those are pretty strong numbers and it may surprise you that the CSL share price didn’t move more.
EPS growth of 44% is not bad at all.
A dividend drop of 9% is not the worst outcome in a difficult operating environment either.
Here’s how the Australian Financial Review broke it down today (emphasis added):
‘Despite the strong first half result — which exceeded consensus expectations by about 25 per cent — the company maintained its full-year guidance of net profit of $US2.17 billion to $US2.265 billion at constant currencies, representing growth of 8 per cent…One of the biggest risks to CSL in the near term is people in the US not donating plasma, as they stay home due to the pandemic.
‘On Thursday, the company revealed lower plasma collections were likely to have an impact on the company in the future years.’
So, there you have it, a relatively definitive answer to why CSL shares slumped this year.
Here’s my take…
Outlook for the CSL share price
I suspect that as the core business of blood plasma falters, CSL will have to pivot to other products to maintain the growth numbers that were a mainstay for their appeal over the last five years.
Meanwhile, a small cut to their dividend shows the company is most likely looking to conserve capital to achieve this feat.
In the coming years I expect CSL to maintain its dominant position in the market, but growth to slow.
It could then increase its dividend payout ratio while the earnings drop off.
Meaning that the appeal for this company will do a swap, from growth company to dividend staple.
Not the worst outcome, just maybe anticipate less capital growth and be more prepared for sideways trading.
Growth darlings eventually become dividend darlings if they last long enough.
It’s also important to take into account the fact that CSL reports its earnings in USD, which is weak right now.
With the AUD climbing up the charts, be sure to check out this report examining whether or not the AUD will keep climbing or crash back to Earth.
It could be the difference between a fancy vacation when/if things open back up, and having to stay home.
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