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CSL expects profit leap

By Helen Matterson

August 4, 2004


BLOOD products group CSL expects a profit of up to $220 million for 2003-04 after one-off gains from an asset shuffle.


The much awaited forecast came in sharply higher than the previous year's $70 million profit because of surprising inventory gains from its purchase of the Aventis Behring plasma therapeutics business and the well-flagged profit on the sale of its animal health business to US giant Pfizer.


Following the $786 million settlement of its Aventis Behring purchase in April, CSL, the world's second-largest maker of blood products, has held off giving financial guidance.


CSL managing director Brian McNamee said the complex process of integration had made it difficult to forecast the group's financials in 2004 with any accuracy. "However, given we now have operational control and three months' trading results from the newly formed entity, ZLB Behring, we are in a position to provide guidance for fiscal 2004," he said.


The headline figure includes the $75 million profit on the $170 million sale of its animal health business to Pfizer last December.


However, it was the $70 million profit made on the sale of inventory associated with the Aventis Behring acquisition which exceeded analysts' estimates - in some cases by up to $55 million. This benefit, on an accounting basis, relates to the discounted price at which CSL bought AB and the higher price it is able to realise for the inventory, which it is now in the process of selling off.


A further $215 million will be realised over the next two years.


Excluding the one-off items, the range of $65$75 million was broadly expected.


CSL stock slipped 1.8 per cent or 48c as investors focused on the 2004-05 outlook, which will not be clear until the company releases its annual results on August 26. However, Merrill Lynch healthcare analyst Michael Carmody believes any "risk will be on the upside".


In the past five trading days the stock jumped 15 per cent after one broker report suggested synergies from the acquisition were "conservative" and another highlighted a 10 per cent increase in US intravenous immunoglobulin prices.


CSL has indicated synergies from the acquisition will be "at least" $US100 million ($140 million) by 2007. However, a research report by Deutsche Bank which compared CSL's restructuring to that of arch-rival Baxter, suggested the numbers would be more robust.


With the closure of 35 collection centres Deutsche estimates 1000 positions or 10 per cent of CSL's workforce will go, resulting in annualised savings of around $36 million, alone.


The broker upgraded its price target to $28 from $24 to reflect a 12 per cent lift in earnings per share growth in its 2005 forecast.




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Deal means more than trade


August 07, 2004


JOHN Howard knows that if the election were to be concentrated on the US free trade agreement he would almost certainly win, because at this stage the consequences of not signing it are horrendous -- our interest rates would rise in the medium term and our role in the region would diminish.


And coincidentally, three of the companies that will be closely involved in the benefits of the free trade agreement -- Mayne, CSL and wine company Orlando -- all had bullish announcements this week.


One of the dangers of the FTA is that because our equity analysts are isolated from world share valuations, US companies will give more attention to Australia and will buy our key enterprises cheaply -- as the French are trying to do with Axa Asia Pacific.


But while Howard might win an election over the US agreement, the scars of the campaign debate would probably destroy the FTA and damage the alliance.


Why is the US free trade agreement so pivotal for our long-term future? The actual agreement will not change our standard of living enormously and the ALP is probably right in saying the Government overstates the direct monetary benefits.


But the FTA enables Australia to emerge in the region with two major prosperity drivers -- the US market and China.


Plus we are further enshrining our US defence shield -- which has become vital given the alarming arms race in the region.


If we don't sign it we emerge as merely a China supplier in almost the same boat as the ASEAN countries which are now China economic satellites.


And given our suspect air and other defence policies, we will need to act in accordance with our diminished position in the region.


All this might not matter if Australia had a high savings rate and generated its own capital.


But we have run trade deficits for years, which we fund with massive overseas borrowing via our banking system.


A large portion of our home mortgages are financed by bank depositors in Japan and other Asian countries.


A higher-risk Australia would have to pay more for that money and the banks would have to pass the extra cost on to home borrowers.


If Australia had never started a free trade agreement with the US, the talks had broken down, or Congress had rejected the proposal, then the status quo would have remained.


But we did start the negotiations and we reached an agreement, which Congress has overwhelmingly approved.


If our Parliament now rejects it, we are making a significant statement about a long-term relationship with the most powerful country in the world.


Looking forward, I think it highly likely that our agreements and relationships with China will deliver more substantial monetary benefits than the agreement with the US.


Future Australian governments will need to be very skilled at making sure we don't get caught in the middle as our two great trading partners inevitably become involved in arguments.


Indeed, the opportunity to be an honest broker might even further enhance our position in the region. We saw a taste of this when Alexander Downer was welcomed by all sides to intervene in the North Korean dispute.


But while it might be secondary to China, the US market is still an enormous one and represents a huge opportunity spanning many industries. Obviously one of those industries is wine.


Our second biggest winemaker BRL is owned in the US, while Foster's has a major stake there.


But it was the French-owned Orlando that showed the potential this week with its agreement with the world's largest retailer, Wal-Mart, which will show the way for other major Australian wine companies that want to free themselves from the high cost US wine distribution systems.


Once the free trade agreement is signed, Australia should see a lot more US research in Australia.


It was a strange coincidence that the two Australian drug companies with big stakes in the US, CSL and Mayne, both reported higher than expected earnings for 2003-04.


Mayne is at the centre of the Howard-Latham dispute because it is the leading generic drug developer in Europe as well as in Australia and Asia.


It should have purchased a further major stake in the US to gain world ranking, but its board was nervous after the previous debacle and wanted to see runs on the board before acting.


CSL is Australia's first global pharmaceutical company and its share price is just beginning to appreciate the benefits of this status.


Like Mayne and so many other Australian companies, CSL became half a global company when it acquired ZLB.


It was very exposed to currency and other moves.


The acquisition of Aventis Behring at a low price completes the whole operation and enables CSL to have a real presence in the US at just the right time.


CSL will be a major long-term beneficiary under the umbrella of FTA.


Meanwhile, if the oil crisis continues then the US motor industry will need to be revamped because American consumers have swung to four wheel drive vehicles, which are very expensive to run when oil prices are high.


Australia's GMH exports more cars, engines and other components than the value of exports from the entire Australian wine industry.


In an FTA environment, if oil prices rise above $US50 a barrel the Australian motor industry will almost certainly play a big role in helping transform the US industry.


Given the ideological opposition within the ALP, Latham has done a good job getting so close to ratifying the FTA agreement.


But he may have used up vast amounts of internal political capital to get it through.


That may leave the ALP left wing politicians free to change the industrial relations system, with few moderating shackles.


The chief economist at the HSBC bank, John Edwards, worked closely with former ALP industrial relations minister Clyde Cameron in the 1970s and Paul Keating in the 1980s, so he knows exactly how the ALP industrial relations policy works.


In a note to HSBC clients he warned that on the surface the ALP policy looks fine and akin to NSW and Queensland.


But the unions have inserted a series of clauses in the policy to enable them to restore to the power they held in the 50s and 60s. According to Edwards they will do this by enabling the Australian Industrial Relations Commission to intervene when there is an "intractable dispute" between employers and unions.


This power is designed to enable the commission in such situations to make an award that replaces an enterprise agreement -- in the 1990s Labor stripped the Industrial Relations Commission of similar powers.


With the power reinstated, it's easy to make disputes intractable and get new awards.


Soon it will be back to the old days and the new awards will quickly spread to so-called "comparative wage justice" situations which will enable the commission to unify the awards that it establishes.


If that happens, Ian Macfarlane would have no choice but to break the consequent inflation with big interest rate rises and a deep recession.


The lack of productivity would substantially reduce our attractiveness to the US and the world.


Given the respect Edwards has among responsible ALP officials and politicians, that dangerous stance would normally have been quietly removed from ALP policy.


But when you have used up all your capital on the FTA the task becomes very hard.


Robert Gottliebsen writes for The Australian and hosts Business Daily on ABC Asia Pacific TV.




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Drugs confuse institutions as stocks take a trip overseas


August 27, 2004


THE latest results from CSL and Mayne illustrate how many Australian institutions are really struggling to fathom the global value of Australian stocks that succeed overseas.


In the case of CSL, the US fund manager Fidelity took time to put CSL's situation into a global context, and as a result gratefully snapped up 14 per cent of the stock from bewildered local super fund managers.


In Mayne's case, the group's generic pharmaceuticals business, on global values, is worth around the current Australian share price with the Australian non-pharma operations thrown in as a bonus. But Mayne has significant decisions to make in the next six to 12 months which will determine its long-term fate.


On my calculations, CSL's 2003-04 earnings totalled $186.6million or 95c per share. This is after deducting the profit earned on the sales of its animal health business. But the $186.6 million profit includes $68 million (before tax) which arose from CSL's low-priced purchases of Aventis Behring stock.


There will be an even greater gain from these stock sales in the current year. But these gains will be replaced by the substantial benefits from the merger rationalisation -- the combined staff has been cut 30 per cent and plants have been shut -- which will really show up in 2005-06.


The company says it has a clearly sustainable profit of $250 million to $270 million, or $1.37 a share. Add on likely price rises and goodwill, and this is a stock that is going to earn more than $1.50 a share this year, barring surprises.


At $26, that puts the stock on a price-earnings ratio of under 20. But chief executive Brian McNamee says the company's royalty income from the human papillomavirus vaccine (HPV) joint venture with Merck could amount to $150million to $200 million in, say, three to four years' time -- if all goes to plan.


After tax that equals about 80c a share and McNamee says a reasonable component of HPV in CSL shares is about $8.


The company has other exciting research projects which would take its research projects to a value of around $10, so on a net basis the stock is valued at $16 and the long-term PE is only around 10.


Of course, a lot can go wrong and the stock has had a big rise. But CSL generated a cash flow of $207 million in 2003-04 and this is set to rise to more than $500 million in a few years.


What the company does with its cash flow will determine its ultimate share price. CSL would be valued much more highly if it was based in the US.


In the case of Mayne, chief executive Stuart James declared that the group's generic pharmaceuticals operation would increase turnover by at least 30 per cent in the current year to $642 million and that the profit margin from this turnover could be as high as 20per cent, delivering a $130million EBIT.


The $130 million translates to a similar after-tax profit, because goodwill amortisation can be netted against tax. Accordingly, the pharma business is looking to earn 20c a share in the current year.


In the US generic pharmaceutical companies sell on a PE of 20 to 25, making the Mayne business worth about $4 a share.


The global giant Sandos bought Sabex, a company similar to Mayne, on a PE of more than 30 times. Mayne's great dilemma is whether to participate in the global rationalisation and buy key generic companies, or take the cash prize.


If Mayne does nothing, there is clearly the danger of being a minnow among global giants.


Most Australian institutions don't understand the issues and keep worrying about the performance of minor parts of its Australian operation.


Of course, in the latest year, Mayne's Australian operations produced two-thirds of the profit, but they don't carry the same PE ratio values as the global business.


CSL is Australia's first global pharmaceutical company. Mayne could be the second but, unlike CSL, the job is not completed and the chopping block is always a possibility.




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boohoo - no-one here but me. http://www.ShareScene.com/html/emoticons/sad.gif




wtf happened today?


maybe this xplains?


" CSL Ltd. (CSL AU) gained A$1.67, or 6.4 percent, to A$27.70. The world's second-largest maker of blood products had its biggest gain in more than eight months as analysts such as Citigroup Inc.'s Andrew Goodsall said global prices for IVIG, a plasma product, are rising. U.S.-based Baxter International Inc. is the world's biggest blood products maker.


Bayer AG, Germany's second-biggest drug maker, reported sales growth from its IVIG products, Macquarie Research Equities said in a note to clients yesterday, while Accredo Health Inc., a U.S. medical products seller, said it is paying more for IVIG this year, in its fourth-quarter results statement released Monday."





also this page- watch the targets, bottom right:



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phew spyglass. i feel better now http://www.ShareScene.com/html/emoticons/smile.gif


good luck!


Around the Traps ... with THE FERRET

08:05, Friday, 3 September 2004


Sydney - Friday - September 3: (RWE)


CSL announced a great result for the year the other day, with

net profit up 212 per cent to $219.6 million.

And things are looking good.

The company says the plasma therapeutics industry is

rationalising, with the market moving to correct the oversupply


There is evidence prices in the US are beginning to move

towards economically sustainable levels.

The global structural change, coupled with CSL's solid progress

with integrating ZLB Behring, has strengthened the company's confidence

in its strategic direction.

"However these positive signs must be tempered as our 2003-2004

results include just three months of the combined ZLB Behring

operations," the company says.

"At this stage we remain comfortable with the upper end of our

previous guidance for 2004-2005 which we provided to the market in

December 2003, which was net profit after tax in the region of $250 to

$270 million subject to currency fluctuations and material price

movements for our core plasma products."

The market has got pretty excited about all this and CSL, which

was $24.45 before the profit announcement, has not stopped climbing.

It hit $27.35 yesterday, a rise of $1.32.

In the year under review CSL's fully diuted EPS was 123c.

This means the stock is on a p/e ratio of more than 22.

If you take the higher figure of $270 million profit expected

this year, EPS will be about 150c this year, putting the stock of a

future p/e of 18, which is higher than market average.

Still, that's not like the bad old days when CSL was nudging

$100 and the p/e was nudging three figures.

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QUOTE (drrc @ Friday 03/09/04 09:23am)

Hi drrc,


Don't know where the Ferret got some of those SP from. The article mentions that it hit $27.35 yesterday but it actually got to $28.20 and closed at $27.70.


Also the last sentence mentions that it nudged $100 per share - I was only aware of a price in the low $50s (was there a share split?).


I'm looking for mid to late $35-$38 in the the next 6-9 months.



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agree spyglass- some weird numbers quoted there- i don't remember anything near $100- i wonder if they meant p/e around 100?


also looking to $35+ as a target- lots of benefits from aquisition and reduced currency fluctuations. the big driver i'm looking forward to is the HPV vaccine- a major breakthough against cervical cancer, and will have to be included in routine immunisations schedules all around the world! but about 3-4 years until it hits the market- looking forward to juicy deals from gsk b4 then.





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