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 contract caterer Compass Group (CPG -0.09%) and food ingredients firm Tate & Lyle (TATE 1.13%).
The shares of both companies have outperformed the FTSE 100 over the past year. The Footsie is up 7%, but Tate & Lyle is up 12% and Compass 25%.
Let's take our seats at ringside.
Round 1: Earnings
|
Metric |
Compass |
Tate & Lyle |
|---|---|---|
|
Recent share price (pence) |
735 |
769 |
|
Last year price-to-earnings (P/E) ratio |
17.3 |
13.4 |
|
Current-year forecast P/E |
16.0 |
13.5 |
|
Four-year earnings per share (EPS) compound annual growth rate (CAGR) (%) |
18 |
13 |
|
Current-year forecast EPS growth (%) |
8 |
(1) |
|
Forecast operating margin (%) |
6.6 |
10.0 |
Source: Digital Look. Winners in bold.
Tate wins the points for P/E, but Compass scores on earnings growth. The first round is decided in Tate's favor when it takes the final point for a superior operating margin.
Round 2: Dividends
|
Metric |
Compass |
Tate & Lyle |
|---|---|---|
|
Last year dividend yield (%) |
2.9 |
3.2 |
|
Current-year forecast dividend yield (%) |
3.1 |
3.4 |
|
Four-year dividend CAGR (%) |
15 |
2 |
|
Current-year forecast dividend growth (%) |
8 |
5 |
|
Forecast dividend cover |
2.0 |
2.2 |
Source: Digital Look. Winners in bold.
It's a similar story in round two. Tate again takes the first two points and Compass hits back with its growth numbers. Again, the round is decided in Tate's favor on the final point -- this time, more conservative dividend cover.
Round 3: Balance sheet
|
Metric |
Compass |
Tate & Lyle |
|---|---|---|
|
Price-to-book (P/B) ratio |
4.2 |
3.4 |
|
Net gearing (%) |
33 |
51 |
Source: Digital Look. Winners in bold.
Round three ends all square with one point apiece. At the end of the contest, Tate has won two rounds and one round has finished in a draw. The overall points tally is Tate seven and Compass five.
Post-match assessment
This was a bit of a closer contest than the bare scoreline suggests, as it was essentially decided by Tate's superior operating margin and narrowly better dividend cover.
However, Tate did take all five of the valuation-ratio points I use in these head-to-head contests -- historic and forecast P/E, historic and forecast dividend yield and P/B -- giving it better "value" credentials than Compass at their present share prices.
Against that, supporters of Compass can point to the caterer's much superior earnings and dividend growth -- both historic and forecast -- which certainly adds another important ingredient to the mix.
Overall, I'd say there isn't too much to choose between these two companies. However, as their P/Es are not particularly generous compared with the market average and their yields are also a little on the stingy side, you may find both shares trading on a more appealing rating at some point in the future.
One investor who has mastered the art of patience is top City investor Neil Woodford. Woodford has thrashed the market over the past 15 years by waiting for opportunities to invest in dividend-paying, blue chip companies when they are on attractive valuations.
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