Head to Head: Experian vs. Intertek

LONDON -- In this series, some of your favorite FTSE 100 shares go head to head in a three-round contest for superiority.

In Round 1, the firms fight on earnings; in Round 2, they duke it out on dividends; and Round 3 is a battle of the balance sheets. The winner will be the company that has racked up most points at the end of the contest.

Stepping into the ring today are analytical-services companies Experian (LSE: EXPN  ) and Intertek (LSE: ITRK  ) .

Experian provides a range of data and analytical tools to businesses around the world, but it's probably best-known to consumers for its credit score services. Intertek provides testing, inspection, and certification services for a range of global industries and markets.

The shares of both companies have outperformed the FTSE 100 over the past six months. The Footsie is up 12%, while Experian is up 16% and Intertek has risen 19%.

Let's take our seats at ringside.

Round 1: Earnings

 

Experian

Intertek

Recent Share Price (pence)

1,040

3,104

Last Year P/E

21.1

28.5

Current-Year Forecast P/E

19.7

24.2

Four-Year EPS CAGR

8%

22%

Current-Year Forecast EPS growth

7%

18%

Forecast Operating Margin

25%

14%

Source: Digital Look. CAGR = compound annual growth rate. Winning metrics in bold.

Experian comfortably wins the points on P/E, but Intertek dominates the scoring on earnings growth. The first round is decided in Experian's favor when it takes the final point -- for superior operating margin.

Round 2: Dividends

 

Experian

Intertek

Last-Year Dividend Yield

2%

1.1

Current-Year Forecast Dividend Yield

2%

1.3

Four-Year Dividend CAGR

15%

17%

Current-Year Forecast Dividend Growth

3%

20%

Forecast Dividend Cover

2.5

3.2

Source: Digital Look. CAGR = compound annual growth rate. Winning metrics in bold.

It's a similar story in Round 2. Experian again takes the first two points, and Intertek hits back with its growth numbers. Again, the round is decided on the final point -- but this time in Intertek's favor for its more conservative dividend cover.

You may have noticed that Experian's historic dividend growth rate has been almost double its EPS growth rate. The reason is that Experian has increased the proportion of earnings it pays out in dividends over the period, and dividend cover has fallen from more than three to 2.5.

Round 3: Balance sheet

 

Experian

Intertek

Price-to-Book Ratio

5.8

9.1

Net Gearing

70%

111%

Source: Digital Look. Winners in bold.

Experian finishes with a flourish, taking both points in Round 3 and the overall contest by two rounds to one. The total points tally is Experian seven, Intertek five.

Post-match assessment
Experian not only won the contest but, in the process, took all five of the valuation-ratio points I use in these head-to-head battles: historic and forecast P/E, historic and forecast dividend yield, and price-to-book ratio.

However, while Experian scores well on value relative to Intertek, its rating is nevertheless very high: The P/E around the 20 mark is way above the market average, and the 2% dividend yield is way below.

Experian and Intertek have grown their earnings and dividends strongly through the difficult past five years. The trouble is that the market is only too aware of it, and the shares have rated ever higher since fiscal year 2009.

Both companies gave the market bullish updates last month, but they'll have to keep delivering again and again to justify their current lofty ratings. Any slip-ups at these heights could be painful.

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