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 the most points at the end of the contest.
Stepping into the ring today are retail property firms Hammerson
The shares of both companies have moved broadly in line with the FTSE 100 over the past six months. The Footsie is up 11%, Hammerson 12%, and Capital Shopping Centres 10%.
Let's take our seats at ringside.
Round 1: Earnings
|
|
Hammerson |
Capital Shopping Centres |
|---|---|---|
| Recent share price | 464p | 344p |
| Last year price-to-earnings (P/E) ratio | 24.0 | 20.8 |
| Current year forecast P/E | 23.4 | 21.1 |
| Four-year earnings per share (eps) compound annual growth rate (CAGR) (%) | -17 | -18 |
| Current year forecast eps growth (%) | 3 | -1 |
| Forecast operating margin (%) | 47 | 34 |
Source: Digital Look. Winners in bold.
Capital Shopping Centres scores points on P/E, while Hammerson takes the points for forecast earnings growth and operating margin. This tight round is decided in Hammerson's favor by the historic earnings record, where Hammerson's poor performance is only marginally less bad than Capital Shopping Centres'.
As you can see from those historic earnings numbers (and the historic dividend numbers in the next table), Hammerson and Capital Shopping Centres have some way to go to recover from the financial crisis, which hit them both extremely hard.
Round 2: dividends
|
|
Hammerson |
Capital Shopping Centres |
|---|---|---|
| Last year dividend yield (%) | 3.6 | 4.4 |
| Current year forecast dividend yield (%) | 3.8 | 4.4 |
| Four-year dividend CAGR (%) | -12 | -19 |
| Current year forecast dividend growth (%) | 5 | 0 |
| Forecast dividend cover | 1.1 | 1.1 |
Source: Digital Look. Winners in bold.
Round two ends all square. Capital Shopping Centres takes the yield points, Hammerson the growth points and the companies share the point for dividend cover.
You may have spotted that dividend cover is very low for both companies. This is because Hammerson and Capital Shopping Centres are structured as real-estate investment trusts (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
|
|
Hammerson |
Capital Shopping Centres |
|---|---|---|
| Price-to-book (P/B) ratio | 0.9 | 1.0 |
| Net gearing (%) | 53 | 120 |
Source: Digital Look. Winners in bold.
Hammerson finishes strongly, taking both points in the final round. At the end of the contest, Hammerson has won two rounds, and one round has ended in a draw. The overall points tally is Hammerson 7.5 and Capital Shopping Centres 4.5.
Post-match assessment
This was a fairly comfortable win for Hammerson in the end, though it should be noted that Capital Shopping Centres took four of the five valuation-ratio points -- historic and forecast P/E and historic and forecast dividend yield -- while Hammerson only managed to win a single valuation point (P/B).
However, in the case of property companies, I consider P/B, being asset-based, to be the single most useful of the five valuation measures. One word of warning, though: Don't get too excited about Hammerson's P/B 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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