Head to Head: Hammerson vs Capital Shopping Centres

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 (LSE: HMSO.L  ) and Capital Shopping Centres Group (LSE: CSCG.L  ) .

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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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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