Head to Head -- InterContinental Hotels vs. Whitbread

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, on dividends; and Round 3 is a battle of the balance sheets. The winner will be the company that has racked up the most points at the end of the contest.

Stepping into the ring today are InterContinental Hotels Group  (LSE: IHG.L  ) , the owner of the eponymous hotel and resort chain and eight other hotel brands, and Whitbread (LSE: WTB.L  ) , the owner of Premier Inn hotels and several eatery chains.

The shares of both companies have outperformed the FTSE 100 over the past year. The Footsie is up 7%, but IHG's shares have risen 40% and Whitbread's 48%.

Let's take our seats at ringside.

Round 1: Earnings

 

Whitbread

IHG

Recent share price (pence)

2,456

1,542

Last-year price-to-earnings (P/E) ratio

19.3

18.4

Current-year forecast P/E

16.5

18.2

Four-year earnings per share (EPS) compound annual growth rate (CAGR) (%)

13

16

Current-year forecast EPS growth (%)

17

7

Forecast operating margin (%)

17

30

Sources: Digital Look, Morningstar, company reports. Winners in bold.

IHG scores on historic measures, both P/E and earnings growth, while Whitbread takes the points for the forecast versions of the same two measures. The round is decided by IHG's superior operating margin, which gives IHG three points to Whitbread's two.

Round 2: Dividends

 

Whitbread

IHG

Last-year dividend yield (%)

2.1

2.2

Current-year forecast dividend yield (%)

2.3

2.5

Four-year dividend CAGR (%)

9

14

Current-year forecast dividend growth (%)

9

10

Forecast dividend cover

2.7

2.2

Sources: Digital Look, Morningstar, company reports. Winners in bold.

In round two, IHG extends its lead by taking four of the five points. However, three of the points -- the yield pair and forecast growth -- are very close. Whitbread's consolation point is for superior dividend cover, though IHG's cover is perfectly respectable.

Round 3: Balance sheet

 

Whitbread

IHG

Price-to-book (P/B) ratio

3.4

12.1

Net gearing (%)

40

93

Sources: Digital Look, Morningstar, company reports. Winners in bold.

Whitbread fights back strongly in the final round, taking both points -- but it's too little, too late. IHG emerges as a two-rounds-to-one winner. The overall points tally is IHG seven and Whitbread five.

Post-match assessment
This was quite a closely fought contest, particularly as Whitbread lost out only narrowly on three tight points in the dividend round.

Both companies have EPS and dividend growth records (and forecasts) in high single figures or double digits -- well ahead of inflation. However, in both cases, this is very much reflected in the five valuation measures -- historic and forecast P/E, historic and forecast dividend yield, and P/B -- which are all on the overvalued side of the market average.

On this basis, neither company looks like a very appealing investment prospect at present. It is perhaps not surprising after their shares have roared so far ahead of the market over the past year.

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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. Try any of our Foolish newsletter services free for 30 days.


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