CSL: Positive Signs

Technicals | Sep 19 2019

Bottom Line 18/09/19

Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend: Up
Support levels: $173.00 / $150.15 – $149.30
Resistance levels: N/A

Technical Discussion

CSL ((CSL)) conducts research of biopharmaceutical products. Following positive results, it continues into the development and manufacturing stages before distributing the product. It operates in three segments; CSL Behring, Intellectual Property licensing and Other Human Health. The latter consists of CSL Bioplasma and CSL Biotherapies. Recently the company has acquired the Novartis flu vaccine business now making it the world’s second largest manufacturer. Whilst this may generate near term head winds, longer term it’s expected to increase its profile significantly and turn a loss maker into a globally competitive business. For the year ended 30 June 2019, revenues increased 8% to $8.55B. Net income increased 11% to $1.92B. Revenues reflect the CSL Behring section increase of 7% to $7.19B, the Seqirus section increase of 10% to $1.04B, the United States section increase of 13% to $3.97B and the United Kingdom section increase of 41% to $510.4M. Dividend per share decreased from $1.69 to $1.00. Analyst consensus is currently “Buy”. The dividend yield is 1.2%.

Reasons to remain bullish (short term weakness feasible).
→ Positioned to meet immunoglobulin demand. The supply chain investment should be supportive to continued volume growth.
→ Heavy investment in plasma collection centres which should grow market share.
→ The U.S FDA has approved Hizentra to treat neurological disease.
→ Volume growth expected for immunoglobulin/albumin.
→ Competitor weakness has been advantageous.
→The recent launch of Haegarda could be a potential catalyst for the company.
→ Acquiring 80% of a Chinese plasma fractionator which should provide a foothold into China.
→ Ongoing acquisitions offer strong gains in synergy.

On the whole brokers continue to be bullish on CSL, as data and growth forecasts look attractive. Of course, to a large extent this is already built into price although this has been the case for many years as the stock has continued to head higher. We are going to stick with the weekly chart this evening which shows the headline pattern remains the Cup & Handle. We noted last time that the handle was likely yet to be made and this has proved to be the way forward. In fact, price could continue to posture in this region for several more weeks before our wanted breakout transpires although it’s by no means a prerequisite to higher prices. Either way, a comprehensive push up through the recent pivot high at $242.10 would be a strong signal that the next leg higher is about to unfold.

We can then measure the depth of the C&H and project that distance from the breakout which will allow price to head up toward our target zone just beneath $290.00. It would take a push beneath $215.00 to move back to a neutral stance which comes on the back of the Handle retracing more than 30% of the prior leg higher. This is only a guideline as opposed to being a rule although it’s one that is usually adhered to. Interestingly, the recent pull-back has likely been triggered by bearish divergence on the daily chart (not shown) although our indicator has now unwound into the oversold position meaning it’s no longer a headwind.

Trading Strategy

Over the past few reviews we’ve refrained from putting forward a formal recommendation and nothing changes in that regard. Having said that, we continue to like what’s developing here although as mentioned above price may need to consolidate for a few more weeks before the breakout transpires – assuming it’s going to. We’ll be keeping an eye on the daily chart for an opportunity.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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CSL