CSL Limited

The gold flows in our veins

And another week of the coronavirus crisis has gone by, which also means my first week working from home. The S&P 500 index managed to gain 10 percent again, but the situation is still more than tense. A vaccine to protect against the Covid19 virus hasn't been found yet either. While the situation in China is slowly calming down again, Italy, Spain and Germany are still far from that. The epicenter in the US is still the financial metropolis of New York. Tim Schäfer, whom I met in person in Manhattan a few years ago, nevertheless remains optimistic. He regularly reports on the current situation on his YouTube channel and his blog. His optimism and confidence in particular are truly a blessing these days.

I'm also continuing to buy stocks at a special discount. In a crisis like this, truly wonderful buying opportunities can come up, and you should definitely take advantage of them. So today, fittingly, I'd like to introduce you a bit more closely to the pharmaceutical company CSL Limited from Australia.

The history and business model of CSL Limited

On March 15, 1854, Emil Adolf Behring was born in Hansdorf (West Prussia - present-day Poland), the fifth of twelve siblings. His father Georg August Behring worked as a village schoolteacher. To supplement his salary and be able to feed the large family, he worked in the fields in the mornings before class. His father noticed very early on that Emil was a quick learner, which is why he sent him to a Gymnasium (academic high school). He was later supposed to follow in his father's footsteps and become a teacher too. Emil, however, wanted to become a doctor. Since tuition at the University of Berlin was very high, he had to commit to 9 years in the military. After successfully completing his doctorate in 1878, he went through a career as a military physician and was already working on various infectious diseases and bacteriology back then.

In 1887 Behring was appointed staff surgeon and assigned to the pharmacological institute of the University of Bonn, where he worked together with the pharmacologist and medical historian Carl Binz. The research institute's goal was to fight infectious diseases with various chemical agents. Even back then Behring held the view that the chances of success would be higher if the body produced its own antitoxins as part of its immune response. After just 2 years in Bonn, Behring was ordered back to Berlin. There he assisted Robert Koch, the discoverer of the tubercle bacillus and founder of medical bacteriology. To continue researching serum therapy, in 1890 he teamed up with the Japanese bacteriologist Kitasato Shibasaburō. Together they focused on the highly contagious infectious disease diphtheria, which killed huge numbers of newborns and toddlers back then. They took blood from infected animals, used it to produce their diphtheria antiserum and started the first human trials. Even though these first trials were unfortunately unsuccessful, the two kept researching tirelessly, refined the dosage and finally cured the first patients. In 1901 this achievement was honored with the Nobel Prize in Medicine and Behring was ennobled - Emil von Behring. With the prize money he financed the construction of his own company, the Behring-Werk oHG, which he had built in Marburg.

In Australia too, which was also struggling with a number of epidemics at the time, people heard about Behring's successes. At first the vaccines were imported from other manufacturers. But when the country was at war and thus isolated from the outside world, it had to act fast. So in 1916 the Commonwealth Serum Laboratories were founded as a state-owned company with the purpose of producing its own vaccines. Step by step it researched various preparations and thereby ensured that Australia's population had access to the medical advances of the 20th century. These included insulin, penicillin and also vaccines against the flu, polio and other infectious diseases. The state-owned company was privatized in 1991 and listed on the Australian stock exchange as CSL Limited in 1994. Since then the company has developed so well that it was even able to handle several acquisitions with ease. In 2000 it bought the Swiss company ZLB Bioplasma AG. A year later it took over 47 plasma collection centers and research facilities of the Nabi Plasma Collection Centers in the US. In 2004 came the German pharmaceutical company Aventis Behring, which traces its roots back to the Behringwerke in Marburg. At the end of 2014 the Swiss group Novartis sold its influenza vaccine business to CSL. Today CSL Limited is one of the largest, most innovative and most successful specialty biotechnology companies in the world.

How will CSL Limited's business do in the future?

I don't have a crystal ball, but I don't even need one to know that there will still be countless diseases in the future. The current crisis really shows just how enormously important good healthcare is in every country. And it also shows how quickly our healthcare system reaches its limits when an unknown virus suddenly starts making the rounds. By the way, CSL announced that it won't be taking part in the search for a coronavirus remedy. Instead it donated part of its proprietary technology to the University of Queensland team working on a COVID-19 vaccine.

In general, CSL Limited operates in a market with very little competition. The drugs are extremely complex to produce and therefore also relatively expensive. For patients, though, they're vital for survival. At many blood collection centers spread around the globe, donors can give blood for a small compensation. For CSL, only the blood plasma is of great importance here. Many different plasma-based medicines can be made from this "gold of the veins." Even if there could be a longer lockdown now, the pharma company reported that there shouldn't be any shortages. Unlike blood, the extracted plasma can be frozen - and they have plenty of it in stock.

Of course you can't scale blood donors infinitely, which is why CSL has been researching for quite a while how to produce artificial blood itself. Should that succeed one day, it will certainly be a gold mine for the company and its shareholders. Until then, though, even without artificial blood the company still has a great many preparations in the pipeline just waiting to be released.

And how about the dividend?

Even though CSL Limited only went public on the Australian stock exchange in 1994, some investors already received the first distribution of profits in 1993. On top of that, the dividend has been raised every year since 2004. And when it comes to the growth rate, the pharma company sets quite a pace. Over 10 years the average annual increase is 15.2 percent. Over the last 5 years it was even 17.5 percent. So I'm happy to accept the rather "low"-looking dividend yield of 1 percent. The payout ratio is around 45 percent.

Conclusion:
CSL Limited has an interesting and, above all, life-saving past and guarantees an equally important future. Since its privatization the pharma company has managed to diversify ever more broadly and position itself more successfully. In my eyes this is a top investment for long-term investors.