The second half guidance is extremely conservative and likely to be exceeded. The main contributor to the weak implied second half is R&D spending related to CSL112 phase 3 trial. If this trial is successful the investment will be extremely accretive. In which case , viewing the forward P/E of 40x, as expensive , will have been very misleading.
Elders management could have achieved the same result and saved millions of dollars in brokerage fees by simply exercising the built-in conversion option in the hybrids.
Whilst passing $100 an achievement, the more extraordinary aspect of CSL's performance since floating in 1994 is the 30% per annum total return for the 21 years and the Total Contributed Equity in the most recent 2014 financial statements is negative USD2.8bn ie. CSL has bought back all of it's contributed equity and had to create a reserve to account for the excess value of shares bought over and above the original subscribed equity.
Thanks Jonathon. I appreciate your positive comments on Elders but when do you think they will resolve their capital structure issues given they have not serviced their hybrid obligation since 2009 and therefore cannot pay ordinary dividends?
Chris, your relative value analysis is simplistic. These securities should be compared on an Option Adjusted Spread basis.
Yes but Australia has it's own currency which makes it's sovereign obligations arguably credit risk free. Greece's are currently denominated in a currency it can't print, hence the credit risk premium in its sovereign yields.
I agree with the point of: why doesn't the government issue annuities directly to the public? If available in retail tradeable format they would be the perfect retirement investment for those wanting to avoid: credit risk, management fees and commissions of financial planners and other intermediaries. Would provide the government with a stable source of domestic long term funding. The entire superannuation industry would then need to justify their performance and fees versus this simple benchmark.
It is interesting to read that Private Equity firms are sitting on record levels of 'dry powder' to be deployed. Apparently $1.2 trillion by some measures according to this article: http://www.ft.com/intl/cms/s/0/fee7efb2-1e3f-11e5-aa5a-398b2169cf79.html#axzz3ebI6w71D If this capital is to be deployed it must put upward pressure on valuations.
Perhaps more ETF's might adopt the potentially catastrophic idea of establishing a credit line to fund redemptions from a bond fund as one manager apparently has, as reported in this article: http://www.ft.com/intl/cms/s/0/7014e83a-137c-11e5-aa7f-00144feabdc0.html#axzz3ebI6w71D I feel sorry for the investors who remain in the fund after others have used the credit line to redeem. They will seemingly become leveraged long assets that couldn't be sold to fund the initial redemptions.
The greatest positive that could come out of all of this would be for a Greek exit to establish a precedent for countries to exit EMU if necessary. Perhaps the recent price resilience of the EUR reflects optimism around the potential clarification.
Would it not be best for the ROE and leverage analysis to be conducted using the amount of 'equity' represented by the ordinary shares if this is what one is actually investing in?
Thanks Murdoch. Very interesting. In particular , noting the historically extreme 10% discount to NTA of the Aberdeen Leaders Fund, why don't management buy back shares given they are allowed to? This would surely be the most accretive investment management could make.
Hi Niv, Where can one find the prospectus for Paradigm Biotech?
Thanks Scott. CSL have shown themselves to be disciplined acquirers in the past. Why are you less positive on this deal?
Is this largely cash held offshore and not remitted home to avoid tax? Would be interesting to see the debt relative to this.
'long duration' assets are infrastructure, utilities and property ie. Long life , capital intensive assets. Their stable, bond-like cash flows make their valuation more highly dependent on rates than 'growth' businesses.
With S&P500 price/earnings multiple around 16x, US 10 year treasury p/e multiple (ie. reciprocal of yield) around 40x and US cash at 25bp implying p/e of 400x . Cash is the expensive asset. All other assets are relatively cheap.