CSL shows wisdom of buying offshore earnings
The wisdom of investing in companies with US dollar denominated earnings was brought home on Wednesday when growth stock CSL reported 10 per cent growth in net profit to $US1.16 billion and lifted its Australian dollar interim dividend 20 per cent to $1.20 a share.
CSL disappointed the market by not upgrading its previously issued profit guidance for financial 2019 of $US1.88 billion to $US1.95 billion. Chief executive Paul Perreault said profit would be at the upper end of the range.
As a growth stock with a heady price earnings multiple of about 32 times forward earnings, CSL was under pressure to exceed market expectations. Price-earnings has come down from a record high of about 43 times earnings last September.
Its shares were hit hard as investors in global equity markets, in particular in the US, dialled down the amount they were willing to pay for growth.
CSL remains a growth stock with its immunoglobulin portfolio performing well with Privigen® sales growing 17 per cent and Hizentra® sales climbing 14 per cent. The turnaround at the Seqirus influenza vaccine business is working well with sales jumping 23 per cent.
Sales of Haegarda®, therapy for patients with hereditary angioedema, tripled in the half year.
As a growth stock CSL's dividend is probably not much of a consideration for investors. But its US dollar-denominated earnings means the payout will fluctuate with movements in the Australian dollar.
In this reporting season, CSL is one of a number of stocks with $US earnings to announce significantly higher dividend payouts in US dollars.
CSL lifted its US dollar dividend by 8 per cent to US85¢ a share. Converted to Australian dollars, this is an interim dividend of $1.20, up 20 per cent on the $1-a-share dividend paid in the previous corresponding period.
CSL's yield is a very modest 1.3 per cent because it devotes about 10 per cent of sales to research and development.
In the half year, CSL opened a new research facility in Melbourne. It spent $US391 million on research and development in the six months ended December 31, up from $US342 million previously.
Earlier in the week, Amcor, which has US-dollar denominated earnings declared a US21.5¢-a-share interim dividend. In Australian dollar terms the payout was up 14 per cent. Other companies with $US-denominated earnings include James Hardie, BHP, Rio Tinto, Resmed and Brambles.
The Australian dollar has fallen about 10 per cent against the US dollar over the past 12 months. It is likely to fall further as the differential between Australian and US interest rates widens. The Reserve Bank of Australia could cut rates this year depending on a range of factors including the conditions in the housing market.
TONY BOYD
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