Head to Head: Land Securities vs. British Land

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 FTSE property giants Land Securities (LSE: LAND.L  ) and British Land (LSE: BLND.L  ) . Land Securities and British Land have outperformed the FTSE 100 over the past six months. The Footsie is up 2%, but Land Securities has risen 12%, and British Land 11%.

Let's take our seats at ringside.

Round 1: Earnings

 

Land Securities

British Land

Recent Share Price (pence)

804

530

Last-Year P/E Ratio

20.9

17.8

Current-Year Forecast P/E

23.2

17.8

Four-Year EPS CAGR

(11%)

(9%)

Current-Year Forecast EPS Growth

(10%)

0%

Forecast Operating Margin

47%

57%

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

It's a clean sweep for British Land in round one. Land Securities only manages to come close on one point: historic earnings growth, where its poor performance is just a little worse than that of its rival.

As you can see from those historic earnings numbers (and the historic dividend numbers in the next table), Land Securities and British Land have some way to go to recover from the financial crisis, which well and truly hammered them.

Round 2: Dividends

 

Land Securities

British Land

Last-Year Dividend Yield

3.6%

4.9%

Current-Year Forecast Dividend Yield

3.7%

5%

Four-Year Dividend CAGR

(16%)

(7%)

Current-Year Forecast Dividend Growth

3%

2%

Forecast Dividend Cover

1.2

1.1

Source: Digital Look. Winning metrics in bold.

British Land continues where it left off in round one, taking the first three points in the second round. Land Securities fights back, scoring narrowly on forecast dividend growth and dividend cover, but it's too little, too late.

You may have noticed that dividend cover is very low for both companies. This is because Land Securities and British Land are structured as real-estate investment trusts, or REITs. One of the rules for REITs is that they must distribute at least 90% of their tax-exempt profits to shareholders. In other words, REITs can't help but have low dividend cover. If you'd like to learn more about REITs, take a look at my article "A Guide To REITs."

Round 3: Balance sheet

 

Land Securities

British Land

Price-to-Book Ratio

0.9

0.9

Net gearing

45%

49%

Source: Digital Look. Winning metrics in bold.

In round three, Land Securities takes one point for its marginally more conservative gearing, while the companies share a point for P/B.

At the end of the contest, British Land has won two rounds, and Land Securities has won one. The overall points tally is 8.5 British Land and 3.5 Land Securities.

Post-match assessment
This was a comfortable win for British Land, and its points tally included four of the five valuation-ratio points -- historic and forecast P/E and historic and forecast dividend yield -- while it matched Land Securities on the fifth point (P/B).

In the case of property companies, though, it's worth noting that P/B, being asset-based, is probably the single-most useful of the five valuation measures. Nevertheless, even allowing for that, the overall picture presented by the numbers suggests British Land may be the better buy at the present time.

One word of warning: Don't get too excited about the P/Bs being less than one, because shares in property companies typically trade at a discount to book value -- and have been known to trade at a wider discount than they are at present.

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Further investment opportunities:

G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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