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 most points at the end of the contest.
Stepping into the ring today are blue-chip chemicals companies Johnson Matthey (JMAT -1.67%) and Croda International (CRDA 1.28%).
The shares of both companies have outperformed the FTSE 100 over the past year. The Footsie is up 9%, but Johnson Matthey is up 27% and Croda 34%. However, over the last six months and three months the two companies have moderately underperformed the index.
Let's take our seats at ringside.
Round 1: earnings
|
|
Johnson Matthey |
Croda |
|---|---|---|
|
Recent share price |
2,298p |
2,343p |
|
Last year price-to-earnings (P/E) |
15.0 |
19.1 |
|
Current year forecast P/E |
15.3 |
18.4 |
|
Four-year earnings per share (eps) compound annual growth rate (CAGR) (%) |
14 |
43 |
|
Current year forecast eps growth (%) |
(2) |
4 |
|
Forecast operating margin (%) |
4 |
23 |
Source: Digital Look. Winners in bold.
Johnson Matthey takes the first two points, but Croda edges the round by taking the remaining three, scoring particularly well on historic earnings growth and operating margin.
Round 2: dividends
|
|
Johnson Matthey |
Croda |
|---|---|---|
|
Last year dividend yield (%) |
2.4 |
2.3 |
|
Current year forecast dividend yield (%) |
2.5 |
2.4 |
|
Four-year dividend CAGR (%) |
11 |
37 |
|
Current year forecast dividend growth (%) |
5 |
2 |
|
Forecast dividend cover |
2.6 |
2.3 |
Source: Digital Look. Winners in bold.
Johnson Matthey takes four of the five points in round two, although the scoring on the yield figures was very close. As with historic earnings growth in round one, Croda scores strongly on historic dividend growth in this round.
Round 3: balance sheet
|
|
Johnson Matthey |
Croda |
|---|---|---|
|
Price-to-book (P/B) ratio |
3.1 |
12.3 |
|
Net gearing (%) |
32 |
87 |
Source: Digital Look. Winners in bold.
Johnson Matthey finishes with a flourish, taking both points in round three and the overall contest by two rounds to one. The total points tally is Johnson Matthey eight and Croda four.
Post-match assessment
This contest was a little closer than the eight-to-four win for Johnson Matthey suggests, as the dividend yield points were very tight. Nevertheless, this was still a reasonably comfortable victory for Johnson Matthey. In addition to the two yield points, Johnson Matthey took the other three valuation-ratio points: historic and forecast P/E, and P/B.
Both companies have spoken recently of depressed market conditions, and analysts are forecasting current-year EPS growth well below the firms' historic rates -- indeed, negative growth in Johnson Matthey's case. Dividend growth is likewise expected to fall well short of past levels.
With P/Es significantly above the market average and dividend yields significantly below, neither company looks a particularly attractive investment proposition to me at the present time.
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