CSL Limited (ASX: CSL) Share Price Strong After Update

While this article focuses on the share market during the pandemic, it in no way seeks to minimise the very real human tragedy that is occurring.

CSL Limited (ASX: CSL) released a Covid-19 business update on Thursday 9 April. Since the announcement, the company’s share price has risen 3.9% to $324.15 as of market close on Wednesday 15 April.

Through the lens of the turmoil of the past month, the positive response to CSL Limited’s Covid-19 update may seem underwhelming, and even prompted dire warnings from some analysts.

Yet the share price increase is better understood as business as usual for CSL. The ongoing growth reported by the company in its H1 FY20 report of 12 February is the kind of performance long-term investors have come to expect from CSL, with net profits after tax up 11% and dividends up 18%. 

So it’s no great surprise to see the company’s share price rising over time. It has done so for around two decades. As you can see, CSL Limited (ASX: CSL) is truly one of the superstar stocks of the ASX.

This is not to say that CSL will not face challenges in the new environment. Issues raised in its Covid-19 update include the temporary shut-down of a facility in Wuhan (it has now re-opened), “modest delays” in capital projects and clinical trials, and perhaps most significantly, a slow-down in blood plasma collection.

Rather ickily, part of CSL’s reassurance to investors on this count was that “new donors [are] expected to arise following economic downturn.” In other words, because blood donors are paid in the US, the principal source for blood collection, the coronavirus recession will cause more people to “choose” to donate blood.

More substantially, blood plasma has a long storage time, and plasma products have a long manufacturing cycle. This allows CSL to continue satisfying end-consumer demand with existing inventory in the medium-term, and ideally accelerate plasma collections after pandemic-related quarantine is eased.

Meanwhile, its logistical network is unaffected, and its facilities are deemed essential and excluded from most government shut-down policies. CSL’s massive blood product distribution networks could be considered to be a candidate for the widest and deepest moat possessed by any ASX listed stock.

More importantly, CSL is likely to directly take part in the efforts to ameliorate and ultimately end the pandemic, and its flu vaccines are already seeing increased demand.

The company is collaborating in the development of manufacturing processes for a potential Covid-19 vaccine in testing by University of Queensland researchers. Its manufacturing processes for antibodies from blood plasma also have potential for application in acute treatments of Covid-19.

Ironically, before it was privatized CSL (then Commonwealth Serum Laboratories) was originally created as a government initiative in response to the Spanish Flu, in 1918.

At a time of broad government intervention, there is more than just the normal dynamics of supply, demand, capital availability and rate of profit to consider. If a company serves a truly necessary social function, its operations are effectively supported by governments, even though you’ll never see it on the balance sheet.

Using our Framework for Sorting Investment Opportunities during a Pandemic, CSL Limited looks likely to work out as a long-term beneficiary of the crisis. The pandemic is unlikely to change its long-term growth trajectory, and the company could well play a direct part in ending the crisis.

Christian Tym does not own shares in CSL Limited.

This post is not financial advice, and you should click here to read our detailed disclaimer.

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