CSL - priced for perfection... and then some

CSL reported a record 1H07 NPAT of $257m, 46% up on the pcp. Eps up 46% dps up 75%. The business continues to perform well and the market thinks so too sending the share price 10% higher to $77.42 at the close today. Whilst a 46% increase in eps and NPAT seems like an excellent result what you don't see in the P&L is the $53.2m (primarily exchange rate differences) witten off directly against equity recorded as a change in reserves in the balance sheet. Once you factor that in the underlying profit is more like $204.1m an increase of 15.7% - nothing to be sneezed at but far more modest than the headline result.

So what if exchange rate difference are written off against equity? Well if you are really interested in calculating the equity value of CSL rather than focussing on earnings then writing off $53m of equity does matter. No doubt CSL runs a well managed profitable business but is the current share price justified? I struggle to come up with a value of more than $35 a share and that's assuming the company can continue to deliver the high returns on equity of recent years into the future. Rather than adding more of this perfect business to your portfolio it could be a perfect time to take some profits.