Commonwealth Serum Laboratories ASX: CSL, is one of the world’s most talked-about biotech companies. Therefore, it is no surprise that when CSL reached $321 (5/02/2020) the media attention surrounding the company exploded.
Today we are discussing CSL’s financials, 2020 outlook and whether they are worth the investment in 2020.
Investor excitement around CSL grew with the companies 2019 financials. It started with an 11% surge in profit. Now 11% doesn’t sound big. However, 11% represented an increase from around $1.7 million to $1.9 million.
Furthermore, revenue grew by 7.8% between FY 2018 – 2019. Revenue growth demonstrates how CSL’s medical products are successful in generating money. CSL reported a meaningful revenue of $8.5 million back in June 2019.
On top of profit and revenue growth, operating expenses increased by an insignificant 13%. CSL kept expenses at $2.2million while revenue grew to $8.5 million. The growth in expenses is reflective of CSL’s funding and expanding their medical profile.
Investors were even more delighted with CSL’s high return on equity of 36.5%. CSL’s ROE is considered high as the industry average is 11.6% (Simply Wall street)
Thus, it was CSL’s financials that kickstarted the 2019 growth in their share price.
Despite, CSL’s presenting excellent financials, we must analyse the negatives (risks). Because YIG believes in providing investors with a balanced perspective on stocks. CSL reported a D/E of 76.27% in June 2019. Meaning the business does still rely on a significant amount of debt, $4/6 million as of June 2019.
However, CSL management displayed outstanding corporate governance for the last 25 years. Meaning the reliance on debt is probably a calculated decision to fund the expansion of CSL. Moreover, investors continued to BUY despite the current reliance on debt. Which screams investor confidence in CSL.
FY 2020 Outlook
CSL’s 2020 calendar is jam-packed with exciting events. However, here is a few key Price Sensitive Events (PSE’S).
- CSL is planning to open 40 new Plasma Collection stores
- Progress from the recruitment stage of Phase III cardiovascular disease trial to the application of the drug
- Expanding Flucelvax, influenza drug, into the EU and submitted documents to the TGA to sell in Australia – 2019/2020
CSL’s profits are expected to increase between a range of $2,050,000 -$2,110,000 million by June 2020. Moreover, CSL forecasted revenue growth of 6 – 10% revenue growth.
CSL’s above financial guidance accounts for the one-off sales hits the company expects when obtaining its own Good Suppl Practice for Pharmaceutical Products License in China.
Is CSL worth the investment?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
CSL’s 2019 financials were impressive and contributed to a 70% YTD increase. The momentum behind 2019, much like Tesla, will likely continue into 2020 if CSL reports better financials. Because of the current coronavirus, FOMO and demand for the best medical treatment for our ageing population.
With the coronavirus shaking the market investors are looking for stocks with guaranteed growth. Thus, the current scarcity for growth could trigger an increase in CSL. Also, CSL is providing technology and expertise to institutions to help fight the disease. Further adding to the safety of the stock.
Also, CSL offers a dividend. Which seems to be increasing year on year. Making the biotech an attractive cash flow asset.
Why not broaden your knowledge on the biotech market by reading our extensive, uncomplicated and free articles on: Opthea ASX:OPT Ltd, Paradigm Biopharmaceuticals (PAR), Imugene Ltd ASX:IMU or Clinuvel (CUV).
Here are some of Youth Investment Group’s best articles:
- How investing 40k in Tesla at IPO would make you a millionaire or
- Is the highest ASX cannabis performer worth the investment during 2020? Or
- Why a company invested 28 million into PointsBet Holdings ?
If you enjoy our articles or are wanting to learn more, you can subscribe to us for free via email and get updates when we post new articles. From all of us at YIG, thank you for the support.
The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG