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Kick Off: Computershare Limited v CSL Limited

Welcome to today’s round of 16 matchup between CSL Limited (ASX: CSL) and Computershare Limited (ASX: CPU) – now over to our commentator at the ASX World Cup stadium!

Good evening Ladies and Gentlemen, it’s a pity one team will end its world cup campaign tonight because both boast real quality. CSL is the last remaining healthcare company in the competition after ResMed Inc. (ASX: RMD) went down 2 – 1 to Macquarie Group Ltd  (ASX: MQG) in extra time. When Computershare played Macquarie in the pool stages, the match ended in a draw, but CSL beat ResMed in the pool stages. So based on form, the teams are evenly matched.

Pre-match commentary and stats

CSL is a protein science company that supplies blood plasma products all over the world. The company also commercialises its R&D in joint ventures when the discovery falls outside its core business areas. In particular, the company benefits from its extensive blood collection and distribution network that gives it the benefit of significant economies of scale – and the competitive advantage of always being able to deliver.

Computershare is similar in the sense that its global reach gives it economies of scale, and a competitive advantage – the ability to act as share registrar in multiple jurisdictions. Computershare profits from corporate activity – the company handles capital raisings, dividends, votes and other critical administrative functions on behalf of thousands of listed companies in a variety of jurisdictions.

CSL Computershare
Market Capitalisation and recent share price $32.40 billionat a share price of$68.10 $7.07 billionat a share price of$12.72
Forecast FY 14 P/E ratio 22.73 19.66
Forecast FY 14 Dividend Yield 1.81% unfranked 2.43% partially franked
Forecast FY 15 P/E ratio 20.48 17.5
FY 2013 Cashflow Yield 4.15%(24 x cashflow) 5.07%(20 x cashflow)
Net interest cover 81.19 7.37
6 Year Average ROI 27.26% 28.9%

Notes: Thompson Consensus Forecasts, and based on last FY reports.

ACTION TIME – KICK OFF!

When it comes to price, Computershare takes the ball up the field strongly. Neither team is particularly outstanding in this regard, but Computershare has a clear edge over CSL.

Computershare’s projected P/E ratios for FY 2014 and FY 2015 are lower than CSL’s, and its current cashflow yield is slightly better at just over 5%. There’s no denying that CSL is expensive and before long the world-class blood plasma provider lets one in.

Outgoing Computershare CEO Stuart Crosby hits the ball hard and it finds the back of the net! 1 – 0 to Computershare.

Risk and debt is a different matter. CSL can easily cover its interest repayments but Computershare has less room to move. However, CSL has been taking on more debt while buying back shares at not particularly cheap prices. This somewhat blunts the company’s attack, and it cannot score.

It’s still 1 – 0 to Computershare at half time.

The second half starts strongly on growth prospects, with both teams playing more aggressively. Computershare has plenty to gain from economies recovering from the GFC.

However, CSL looks threatening because of its improving ROI and increasing demand arising from the ageing population. CEO Paul Perreault receives an excellent cross from Chairman and super-biochemist Professor John Shine and he heads it into to the net. Computershare chairman, ex-CEO and goalkeeper Chris Morris is too busy selling millions of dollars worth of shares on market to even react!

CSL scores with a nice header that caught the goalkeeper flat-footed! The score is 1 – 1 when the full time whistle blows.

Extra time is flat out – both companies are using everything at their disposal to get ahead. But both are dominant in their markets. Computershare is, perhaps, a little more nimble. Because its market capitalisation is lower, it will find it easier to grow.

Indeed, Computershare can grow its profits simply by waiting until interest rates improve, because the company can collect interest on client funds. In the first half of 2014, it held an average of over $14 billion in client funds, so a small pick up in interest rates would be a game-changer for the company.

That prospect is enough to make the difference when it comes to growth, and in the closing minutes, incoming CEO Stuart Irving finds the back of the net with a lucky strike that bounces of the crossbar to defeat the keeper. Focus on increasing efficiencies and the core business wins the day for Computershare.

With a heavy heart, I must report that the CSL superstars, my personal favourite team, will be heading home. Congratulations to Computershare fans. In the end, price was the main difference.

Computershare wins 2 goals to 1!

Computershare and CSL are undoubtedly crowd-favourite blue-chips, but the real money is made backing the underrated underdog. In contrast to Computershare, directors have been BUYING shares in this small company at close to current prices!

This little known ASX company has already delivered eight consecutive years of profit and dividend growth... but with even more growth ahead, the shares are still a firm "BUY" today! Discover The Motley Fool's #1 dividend pick in our newly updated report. Simply click here for your FREE copy right now.

Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Computershare. 

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