CSL Limited (CSL) develops, manufactures and markets human pharmaceutical and diagnostic products derived from human plasma.

The company’s operations are concentrated in Australia, Germany, Switzerland and the US, although its reach extends to almost 27 countries with over 10,000 employees. CSL’s main operational businesses include CSL Behring (including CSL Plasma) and CSL Biotherapies.

The company’s products include pediatric and adult vaccines, infection and pain medicine, skin disorder remedies, antivenoms, Albumin, anticoagulants and immunoglobulin’s (IG).

FY12 results:

As the above shows CSL has a solid history of growing its earnings. Total sales for FY12 were $4.4 billion, which was on a constant currency basis is a 12% jump on FY11.

On a constant currency basis CSL’s FY12 NPAT was $983 million, a 14% increase on the previous year’s result. The balance sheet is also healthy with FY12 cash flow from operations was up 14% to $1.16 billion and $1.16 billion of cash on hand.

Aussie dollar:

Given the company earns a majority of its earnings in US dollars the falling Aussie dollar is a benefit to CSL. Several of the pillars that have been holding up the Aussie dollar are not looking as stable as they once were.

One of these pillars being Chinese demand for Australian commodities is not as strong as it once was, and this in turn means less demand for our currency. Another fact hurting the Aussie dollar is the RBA moving to an easing bias, as characterised by this week’s interest rate cut.

Buy-Back

Another factor likely to underpin the company’s stock price is the undertaking of share-buybacks. The company is currently in the middle of an on-market share buy-back that it is 77% complete.

What was interesting in the release of CSL’s FY12 results was the fact it flagged the potential for another on-market share buy-back. Given its strong cash flow, we think the company will be able to complete another buy-back without stretching its balance sheet.

Outlook:

CSL appears to be in solid shape as we move further into FY13.

The company is expecting constant currency NPAT growth of 12% in FY13, which we think is achievable given its recent history of meeting or exceeding guidance. We also think that a weaker Aussie dollar and the likelihood of another share-buyback will underpin further share price gains.

Our Recommendations:

On the 5th of October 2012 we issued a recommendation to our clients of the  Traders Report to purchase CSL at $46.10. The stock has since moved to a price of $47.17 as of 11:30am October 11th.

For further information on CSL as well as full access to our research files sign up for a FREE 7 Day trial today. Australian Stock Report provides general advice and must indicate that previous results are not a guarantee of future performance.

CBA Reported Unadited 3rd Qtr Cash Profit of $1.75b

Commonwealth Bank (CBA) is the nation’s largest bank by market capitalisation, holds the greatest amount of deposits, the most home loans, and also controls a fair chunk of the wealth management market through Colonial First State.

The financial stock also operates Australia’s largest discount online brokerage operation, Commsec, as well as a multitude of international operations.

Importantly, the bank has used its size to grow even bigger over the years. While many financial institutions collapsed over the global economic downturn – or neared collapse – CBA used its massive deposit base to maintain funding and buy depressed assets.

The banking giant also has diverse exposure geographically with stakes in several banks in the fast growing China.

3^rd Quarter Trading Update

CBA last month reported a third quarter unaudited cash profit of $1.75 billion, a 2.9% increase on the prior corresponding quarter.

The results come after the company had a record first half cash profit of $3,576 million, which was a 7% jump on the prior year.

The group warned not only in its first half update, but also in its March quarter update, that higher funding costs have reduced its margins.

However the updates from the bank covered periods before the RBA cut the official cash rate twice for a total of 75 basis points.

CBA only passed 61 points of these cut, we believe that these should help alleviate some of banks margin pressures.

Aussie Banks

Last week Moody’s downgraded 15 major global banks, with Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley also receiving at least a one notch cut its long-term debt rating.  Credit Suisse was downgraded three full notches.

Spanish and Brazilian banks recently had their ratings cut with Spain obviously suffering major downgrades after the government had to borrow money to keep the banks adequately capitalised.

However the Australian banks continue to be rated amongst the highest in the world, all four remain within their AA credit rating band.

Moody’s said that our banks “don’t engage in capital markets business and in particular higher-risk activities, like proprietary trading. They are focused on traditional lending for residential mortgages and the corporate sector.”

With the Australian banks in such good condition, and some of the last few AA rated banks globally, they are in a better position than most to borrow funds from wholesale markets.

Looking ahead

CBA said in its quarterly update that it is in a strong position, which continues to enable them to take a long term view of business. This is important as the bank continues to expand its presence in the growing Asian region.

We believe that the bank’s worries of higher funding costs would have subsided or at least eased with the two consecutive rate cuts by RBA.

The bank also remains one of the most attractive of the big four banks, with an average return on equity (ROE) over the last three years of 17.4%, a full 2% higher than any of its rivals.

With three quarters of its fiscal year completed, CBA is on track to be the first Australian bank to make a profit on over $7 billion and we look forward to seeing CBA’s continued success translate into continued gains for its share price.

Weekly Buy Recommendation: Telstra (TLS)

Telstra Corporation Limited (TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS owns a 50% stake in Foxtel while Newscorp (NWS) and Consolidated Media Holdings (CMJ) hold 25% each.

Results confirm turnaround

TLS’s 1H FY12 results showed a return to EBITDA growth after years of stagnation. EBITDA grew 3.7% to $4,750 million when compared to the $4,580 million in FY11.

Total revenue climbed by 1.1% to $12,419 million, whilst operating expenses declined 1% to $7,751 million over the same period.

One of the major earnings drivers for the company is its mobiles products; revenue was up 10.9% to $4,393 million year on year. Revenue from this product line alone makes up of one-third of TLS’ revenue.

The growth in Mobiles is impressive, especially when considering EBITDA margin of 34% was considerably higher than Optus’ 25.9% and Vodafone & Three’s 16.3%.

TLS has the only 4G network in Australia and with many new mobile phones being designed with 4G capabilities, the company can continue to experience strong growth in this market.

$11 billion NBN booty

Earlier this month TLS finalised its definitive agreements with NBN Co and the government for its participation in the NBN rollout.

The agreement will provide the company with approximately $11 billion in post-tax net present value over the long term life of the agreement.

The $11 billion includes compensation from the government for decommissioning its copper network and allowing the NBN to use some of its infrastructure.

In a strategy update on April 19^th, TLS said it expected to generate $2 – $3 billion in free cash flow over the next three years, subject to the NBN roll out schedule and market conditions.

TLS also said that it didn’t have the franking capacity to increase dividends before 2014 and that it had no immediate plans for a share buyback.

Arguably a better longer-term share price driver for a company is the implementation of a dividend increase over a buyback.

A dividend increase signals confidence in the long-term prospects of a company, and that TLS’ management has recognised this is a positive thing for shareholders.

Widening yield differential signals positive outlook

TLS is currently trading on a forecast yield (28c for FY12) of over 8.5%, fully franked. This is equivalent to 12.1% pre-tax.

TLS has been able to maintain a 28 cent per share dividend since FY07 and has forecast the same amount for FY12 and FY13.

Given the healthy sums of cash TLS is generating and following this month’s strategy update, we would anticipate a dividend increase from 2014.

When considering the next likely move in interest rates is down, we believe income-oriented investors will increasingly prefer TLS’s dividend yield over potentially lower interest rates on their savings accounts.

As such we think TLS is a stock to watch in the coming months.

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Telstra (TLS) Finalises Deal For NBN Network

Telstra Corporation Limited is a full service domestic and international telecommunications provider for Australia.

The Company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services.

Telecommunications Stock Telstra announced that it has finalised its $11 billion agreement with the federal government and NBN co for the rollout of the National Broadband Network (NBN).

The agreement will see Telstra receive close to $11 billion over the life of the agreement, which ensures that the company’s infrastructure will be used by the NBN.

CEO David Thodey said that Telstra has concluded almost three years of intense and complex negotiations and is pleased to deliver this positive outcome for customers and shareholders.

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QBE First State Negotiations For two Bolt On Acquistions

QBE Insurance Group Limited is an insurance company which underwrites most forms of commercial and industrial insurance policies, as well as individual policies.

QBE also manages Lloyds syndicates and provides investment management services. The Company provides its services both domestically and internationally.

Financial Stock QBE Insurance announced that it is in the final stages of negations to acquire two ‘bolt on’ acquisitions.

The acquisitions are expected to contribute up to US$500 million in annual written premium to the QBE business.

The company which recently raised $450 million from an institutional capital raising said that it will pay for the acquisitions from internal resources.

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Woolworths posts 1H FY12 profit of $966.9 million

Woolworths Limited operates supermarkets, specialty and discount department stores, liquor and electronics stores throughout Australia.  Woolworths also manufactures processed foods, exports and wholesales food and offers petrol retailing.  The Company also operates hotels, which includes pubs, food, accommodation, and gaming operations.

Blue chip supermarket giant Woolworths posted a 1H FY12 profit of $966.9 million, a 16.8% fall compared to the same period in FY11. The results missed analyst expectations.

Revenue for the period was up 5% to $29.9 billion.

CEO Grant O’Brien said that the results were sound considering subdued consumer confidence and deflationary pressures faced by the business.

The company declared an interim dividend of $0.59 per share, up from $0.57 in FY11

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Westfield Group (ASX:WDC)  is the largest retail property group in the world by equity market capitalisation. It has investment interests in 126 shopping centres in Australia, New Zealand and the United States

Westfield, which is among the blue chip stocks, revealed a full year 2011 profit of $1.53 billion, a 37.5% rise on the previous corresponding period, slightly ahead of analyst expectations.

Full year revenue climbed 10.5% to $1.46 billion, year on year.

WDC declared a final distribution of 24.2 cents, in line with expectations.

The group also announced it would start an on-market buyback of securities for up to 10% of its issued capital.

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National Australia Bank (ASX:NAB) is one of Australia’s “big four” banks, with a focus on regional banking, wealth management operations, international capital markets and institutional banking business. Brands within Australia include NAB and MLC, and the group is represented in New Zealand by Bank of New Zealand. In the UK the brands are Clydesdale Bank and Yorkshire Bank.

Financials stock, National Australia Bank released its first quarter trading update which showed 1Q FY12 earnings of approximately $1.4 billion, 8% higher than the previous corresponding period.

The bank said that revenue was driven by wholesale banking and to a lesser extent, MLC and NAB wealth.

NAB also revealed that it will undertake a strategic review of its UK operations, with a view to reposition the arm to deal with the current economic situation in the region.

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Woolworths (ASX:WOW) operates supermarkets, specialty and discount department stores, liquor and electronics stores throughout Australia. Woolworths also manufactures processed foods, exports and wholesales food and offers petrol retailing.  The Company also operates hotels which includes pubs, food, accommodation, and gaming operations.

ASX Blue chip supermarket giant Woolworths today announced 2Q sales growth of 5.1% to $14.1 billion compared to the previous corresponding quarter, this was in line with market expectations.

The 2Q sales results bought the 1H FY12 sales to $29.7 billion, a 5% increase on the previous year.

WOW also announced that it will sell its Dick Smith consumer electronics business following a strategic review that was announced in November.

Since the review the company said it has received a number of unsolicited approaches in relation to Dick Smith.

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Mirabela Nickel (ASX:MBN) is a mining company focused on the production and sale of nickel concentrate.

The miner’s key asset is the Santa Rita nickel operation in Bahia, Brazil.

MBN achieved its production ramp up goals in 2011, successfully upgrading the Santa Rita’s plant capacity to 7.2Mtpa of ore milled, from 4.6Mtpa in 2010.

However the ramp up was also accompanied by rising cash costs, which detracted significantly from an otherwise solid set of December 2011 quarter production numbers.

Costly cash

Mirabela Nickel announced its December quarter production report today.

Nickel output climbed 9% from the previous quarter, helping MBN to meet its 2011 production target of 15,854 tonnes.

However the production numbers were overshadowed by a disappointing rise in cash costs.

Cash costs jumped 11% on the quarter to US$7.42, as the higher output was accompanied by higher plant costs and lower productivity.

Additionally, mining costs rose amid increased expenses relating to drilling activity.

The ramp up in quarterly production was thus poorly executed due to the company’s own efficiencies as well as industry cost pressures.

Risk on

Another concerning aspect of the production release was the almost 50% fall in MBN’s cash holdings from the prior quarter.

A significant part of that outflow was due to the closing out of the company’s nickel and copper hedges.

The lower cash balance in addition to a new US$50 million debt facility entered into by a Brazilian subsidiary, raises MBN’s risk profile in a period of economic uncertainty.

Outlook

MBN has raised its 2012 production guidance, targeting 20,000 – 22,000 tonnes of nickel output.

As mentioned, however, greater output is not necessarily a good thing when it is accompanied by higher cash costs.

Mirabela Nickel has commenced a cost reduction program, which aims to lower cash costs towards US$6/lb by the end of the year. However that is largely dependent on the proper implementation of the program.

Although a return to steady state production may help, cost reductions will also be linked to the favourable renegotiation of MBN’s major contracts.

Having recently closed out of its nickel hedges, MBN is now fully exposed to the movement in commodity prices.

Unfortunately, there is also considerable uncertainty surrounding nickel prices, with brokers Morgan Stanley and Goldman Sachs recently downgrading their forecasts amid concerns about oversupply.

We at Australian Stock Report believe these headwinds are likely to weigh on MBN’s share price for a while yet.

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