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CSL vs CBA: comparing Australia’s two largest companies

We examine the fundamentals behind Australia’s two largest publicly listed companies: CSL and CBA.

CSL vs CBA share price Source: Bloomberg

CBA and CSL share prices: a comparative approach

A number of people have joked that CSL’s share price can only go up.

And after the stock’s recent run up – which saw it briefly become Australia’s most valuable publicly listed company – people may be closer to believing that joke as a truth than ever before.

Of course, as with all things in the market, CSL has no more certainty of continuing its rise than any other investment. Past results, are never an indicator of future performance, investors should remember.

Such an idea may be more pronounced right now due to the fact that markets remain volatile, the full economic impact of the Coronavirus hard to quantify; and equities – both locally and abroad – currently trade at all-time highs.

Even when considering that, as both CBA and CSL continue to run higher, it's worth examining just how both companies got to where they are today.

For one, both companies share an interesting history: one of privatisation.

CSL, originally named Commonwealth Serum Laboratories, was publicly listed on the ASX in 1994. Back then, the ‘fledgling’ biotech had revenues of just $193 million and since then CSL’s share price has delivered a compound annual return of around 25%.

In that sense, CSL’s recent but impressive performance and its place in the spotlight is really nothing new.

Commonwealth Bank of Australia, founded by Australia’s government in 1911, was taken private in 1996. Looking at the bank’s oldest publicly available Annual Report we see that CBA touted FY97 operating revenues of $9.5 billion, against earnings (NPAT) of $1.078 billion.

Things have changed significantly since then, mind you.

The CBA share price is currently trading close to all-time-highs, on a FY19 earnings multiple of 15x. CBA also has cemented its position as Australia’s largest bank, with its keen focus on retail banking continuing to pay off.

As part of its most recent interim results, the bank reported operating income of $12,416 million, against a cash NPAT of $4,477 million. The bank also announced an Interim Dividend of $2.00 per share.

CSL, though not as profitable in absolute terms as CBA, is growing significantly faster than its banking giant counterpart.

Indeed, if Australia’s banking industry is understood to be under siege – CSL inhabits what looks to be an almost diametrically opposed industry: Demand for CSL’s products, centrally its immunoglobulin (IG) portfolio is growing, and rapidly!

'CSL is well positioned for sustainable growth,’ says the company’s CEO, Paul Perreault.

‘Exceptional demand continues for our differentiated therapies. We expect to again outpace the market in expanding plasma collections and our objective to open 40 new collection centres this financial year is on track.’

Such claims look well reflected in the biotech’s recent H1 and its current valuation: here, CSL reported sales and service revenue of US$4,709 million (+8%) against earnings (NPAT) of US$1,248 million (+11%). The biotech giant also bumped up its Interim Dividend and upgraded its full-year earnings outlook. CSL is now expecting NPAT growth in the 10-13% range.

The company previously expected FY20 earnings growth to come in at just 7-10%.

All of this has taken a toll on valuation, mind you. At its current share price CSL is trading at a significant premium to the market, at 53x FY19 earnings. Expensive yes, but an expense investors have been willing to pay for in the last year. In the last 12-months CSL has seen its share price rise an astounding 82%. CBA, by comparison has risen just 22% – still making it the best performing of the big four banks, though.

Finally, at the time of writing, CBA claimed the illustrious title of Australia’s largest company, with a market capitalisation of $155.52 billion.

CSL trailed that just slightly, touting a market capitalisation $153.72 billion.

Do you think the CSL or CBA share price has run too hard in the last year? You can hedge your downside risk by trading CFDs now.

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