Our pick in healthcare right now is CSL (ASX: CSL).
The company is working through a strategic reset under interim CEO Gordon Naylor, and the most recent update wasn’t pretty. There were material impairments, most of them tied to the poorly timed Vifor deal, where generic competition and funding changes have weighed on performance. None of that came as a surprise.
What matters more is what sits underneath. CSL’s two most important divisions are in good shape. Behring makes plasma-based therapies for immune deficiencies and bleeding around surgery. Seqirus supplies flu and pandemic vaccines. Both hold strong positions in areas that are genuinely hard for competitors to break into, and neither is broken.
A year ago the market priced CSL for perfection. Now it’s pricing in something close to terminal decline. We think the reality sits well short of that, and a quality global healthcare franchise trading at a below-market multiple is worth owning.
The flip side is Sigma Healthcare (ASX: SIG). Chemist Warehouse has earned category-killer status at home, and Sigma has pushed offshore into Ireland, China and Dubai with reasonable success. More recently it looked at a much bigger step: buying Boots in the UK for close to $15 billion, around half its own market cap. It walked away for now, but the size of the bet tells you where the ambition is pointed, and that’s what gives us pause.
As Chris Scarpato put it…
“History shows that when companies reach for growth abroad, they’re facing challenges at home.”
