LONDON -- In this series, some of your favorite FTSE 100 (UKX) shares go head to head in a three-round contest for superiority.
In Round 1, the firms fight on earnings; in Round 2, 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 support services groups Capita (CPI 1.21%) and Aggreko (AGK). Capita is focused on white-collar office support services; Aggreko could be described as more blue collar, supplying temporary power generation and industrial cooling and air conditioning.
The shares of both companies have outperformed the FTSE 100 over the past year. The Footsie is up 7%, but Aggreko is up 19% and Capita 21%.
Let's take our seats at ringside.
Round 1: earnings
|
|
Capita |
Aggreko |
|---|---|---|
|
Recent share price |
756p |
2,200p |
|
Last year price-to-earnings (P/E) ratio |
15.6 |
25.2 |
|
Current year forecast P/E |
14.5 |
21.6 |
|
Four-year earnings per share (EPS) compound annual growth rate (CAGR) (%) |
15 |
30 |
|
Current year forecast EPS growth (%) |
7 |
17 |
|
Forecast operating margin (%) |
12 |
23 |
Source: Digital Look. Winners in bold.
Capita easily wins the points for P/E, but Aggreko is equally dominant in scoring on earnings growth. The first round is decided in Aggreko's favor when it takes the final point for a comfortably superior operating margin.
Round 2: dividends
|
|
Capita |
Aggreko |
|---|---|---|
|
Last year dividend yield (%) |
2.8 |
0.9 |
|
Current year forecast dividend yield (%) |
3.1 |
1.1 |
|
Four-year dividend CAGR (%) |
16 |
27 |
|
Current year forecast dividend growth (%) |
9 |
13 |
|
Forecast dividend cover |
2.2 |
4.3 |
Source: Digital Look. Winners in bold.
It's a similar story in round two. Capita again takes the first two points easily and Aggreko hits back with very strong growth numbers. Again, the round is decided in Aggreko's favor on the final point -- this time, more conservative dividend cover.
Round 3: balance sheet
|
|
Capita |
Aggreko |
|---|---|---|
|
Price-to-book (P/B) ratio |
9.5 |
6.7 |
|
Net gearing (%) |
317 |
41 |
Source: Digital Look. Winners in bold.
Aggreko powers ahead in the final round, taking both points. At the end of the contest, Aggreko has won all three rounds. The overall points tally is Aggreko eight and Capita four.
Post-match assessment
This was a comfortable win for Aggreko. Capita managed just four points -- for historic and forecast P/E and dividend yield -- but while these "value" scores are good relative to Aggreko's, they're not particularly generous compared with the average for the FTSE 100 as a whole.
Aggreko's victory in the contest was driven by very strong growth of earnings and dividend. It also has a decent operating margin and fairly modest gearing. However, while a high P/E of above 20 doesn't look unreasonable against Aggreko's historic earnings growth, it looks less attractive when considered against the more modest growth forecast for the current year.
Aggreko's growth will have to return to closer to the historic rate to justify a P/E in the 20s. For me, the company looks fully valued at the present time.
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