Huntleys' Stock of the Week

Recommendations: Buy

CSL's current stock prices

Talecris is off the agenda back to the fundamentals

Investment Rating:

CSL develops, manufactures and markets biopharmaceutical products. The blood plasma industry has consolidated into a few fully-integrated global suppliers. Control of supply, scale of operations, and integration of services from blood collection to product manufacture mean CSL has a significant competitive advantage that is difficult to replicate. Industry consolidation has led to favourable pricing and lifted returns. CSL's Human Papilloma Virus (HPV) vaccine offers a new stream of earnings, with royalty revenue from Merck's Gardasil and GlaxoSmithKline's Cervarix products. Its strong industry position means it is one of our Best Businesses and should be a core portfolio stock at the right price.

Event:

• Talecris says 'based on a careful analysis of the situation and all alternatives available, it believes that termination of the merger agreement is in the best interest of all parties'.

• CSL will buy back 54.8m shares representing 9% of the current shares on issue. This is the maximum a company can do without going to shareholders for approval.

Impact:

• On August the 12 the merger agreement with Talecris will expire and CSL will be liable for a payment of US$75m. Details revealed at the 1H result indicate further transaction costs of $30m will also be incurred. CSL has now taken a foreign exchange hedge position on its US dollar funds which were quarantined for the possible transaction. These funds were translated at a rate of US$/A$ at 89c last year, they will now be hedged back in to A$ at 80c. This will realise a cash profit of $150m. After accounting for costs management says the company will walk away with a cash profit of around $80m. This figure is not material for a company generating profits of over $1bn.

• On completion of the share buy back we forecasts CSL to have effectively no gearing and a small cash position. Management says its long term debt position is a net debt to net debt plus equity in the high twenties to low thirties. This implies management will be looking at further acquisitive opportunities to enhance its portfolio of products or possibility make a further buy back.

The stock of the week is provided by Aspect Huntley, a market leader in sharemarket investment newsletters. For more detailed stock of the week information and expert recommendations, simply click here for a four week FREE trial to Huntleys newsletters.

@ Copyright Huntleys' Investment Information Pty. Limited (HII), a wholly owned subsidiary of Aspect Huntley Pty Limited), 2004. All rights reserved. Australian Financial Services Licence no. 240892. No material may be reproduced, except as allowed by the Copyright Act, without the prior written approval of HII. Some of the material provided by HII is copyright and is published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO"). Consensus forecast data is copyright Thomson Financial DISCLAIMER: While the above-mentioned advice and information are based on information, which HII consider reliable, its accuracy and completeness cannot be guaranteed. This report is made without consideration of any specific clients investment objectives, financial situation or particular needs. Those acting upon such information do so entirely at their own risk. For a copy of HII's Financial Services Guide please go to http://www.aspecthuntley.com.au/FSG or phone HII on (02) 9256 8000 to request a copy. DISCLOSURE: The directors and associated persons or entities of HII may have an interest in the securities discussed in this report.