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 the most points at the end of the contest.
Stepping into the ring today are blue-chip oil and gas explorers BG Group
BG and Tullow have underperformed the FTSE 100 over the past six months. The Footsie is up 5%, while Tullow is down 2% and BG has lost a whopping 21%, largely as a result of a recent warning that it expects no production growth in 2013.
Let's take our seats at ringside.
Round 1: Earnings
|
|
BG |
Tullow |
|---|---|---|
|
Recent Share Price (pence) |
1,007 |
1,364 |
|
Last-Year P/E |
12.0 |
29.2 |
|
Current-Year Forecast P/E |
11.8 |
26.5 |
|
4-Year EPS CAGR |
12% |
51% |
|
Current-Year Forecast EPS Growth |
1% |
10% |
|
Forecast Operating Margin |
37 |
50 |
Source: Digital Look, Morningstar, company reports. CAGR = compound annual growth rate. Winning metrics in bold.
The two companies are closely matched, but Tullow edges the round by taking the final point for its superior operating margin.
Round 2: Dividends
|
|
BG |
Tullow |
|---|---|---|
|
Last-Year Dividend Yield |
1.5% |
0.6% |
|
Current-Year Forecast Dividend Yield |
1.6% |
0.8% |
|
4-Year Dividend CAGR |
+12% |
+19% |
|
Current-Year Forecast Dividend Growth |
+9% |
+30% |
|
Forecast Dividend Cover |
5.3 |
5 |
Source: Digital Look, Morningstar, company reports. Winners in bold.
It's a similar story in Round 2. This time, though, BG edges the round for its slightly more conservative dividend cover.
Round 3: Balance sheet
|
|
BG |
Tullow |
|---|---|---|
|
Price/Book |
1.8 |
4.1 |
|
Net Gearing |
39% |
59% |
Source: Digital Look, Morningstar, company reports. Winners in bold.
BG finishes with a flourish, taking both points in the final round, giving it a two-rounds-to-one victory. The overall points tally is BG seven, Tullow five.
Post-match assessment
Megacap oil majors Royal Dutch Shell and BP are on markedly lower P/Es and higher yields than BG and Tullow. The higher rating of the latter pair is down to their stronger historical growth records and potential for future growth. While BG and Tullow aren't exactly small, it's easier to envision them doubling their market capitalizations than it is to imagine Shell and BP doubling theirs.
BG's recent heavy share-price fall has seen its P/E drop well below its historical average, although the dividend yield remains significantly lower than that of the market as a whole. Tullow, in contrast, remains very highly rated.
Not surprisingly, then, BG takes all five points on the "value" measures I use in these head-to-head contests. Weighing against that is Tullow's strong growth ratings. However, BG's recent history shows what can happen when a highly rated share disappoints the market with a warning that growth in the short term will be lower than had been expected.
For investors with a long-term horizon, BG looks quite attractive at its current price, while Tullow -- perched on its vertiginous rating -- will have to keep delivering blockbuster growth just to keep the market moderately content.
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