LONDON -- In this series, some of your favorite FTSE 100
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 consumer goods giants Unilever
Fears about the global economy and the sovereign debt crisis in Europe have driven investor demand for defensive companies -- companies that perform reasonably well in all economic conditions -- such as consumer goods groups.
The shares of Unilever and Reckitt Benckiser have outperformed the FTSE 100 index over the last six months. The Footsie has dropped 3%, but Unilever is up 11% and Reckitt Benckiser has risen 6%.
Let's take our seats at ringside.
Round 1: earnings
|
|
Unilever |
Reckitt Benckiser |
|---|---|---|
| Recent Share Price (pence) | 2,273 | 3,615 |
| Last Year Price-to-Earnings (P/E) Ratio | 18.7 | 14.5 |
| Current Year Forecast P/E | 17.8 | 14.6 |
| 4-Year Average Earnings Per Share (EPS) Growth (%) | 3 | 19 |
| Current Year Forecast EPS Growth (%) | 5 | -1 |
| Forecast Operating Margin (%) | 13 | 25 |
Source: Digital Look. Winner in bold.
Reckitt Benckiser comfortably wins the first round with Unilever taking only one of the five points for its superior forecast EPS growth.
The operating margin is something of a reflection of the two companies' different business mixes. Both have big non-durable household goods businesses -- cleaning products and the like -- but Unilever also has a substantial food business (lower margins), while Reckitt has a pharmaceuticals division (higher margins).
But let's not take too much away from Reckitt: The group deserves credit for its industry-leading margins and still out-points Unilever on the other four measures.
Round 2: dividends
|
|
Unilever |
Reckitt Benckiser |
|---|---|---|
| Last Year Dividend Yield (%) | 3.4 | 3.5 |
| Current Year Forecast Dividend Yield (%) | 3.4 | 3.6 |
| 4-Year Average Dividend Growth (%) | 16 | 24 |
| Current Year Forecast Dividend Growth (%) | -1 | 3 |
| Forecast Dividend Cover | 1.7 | 1.9 |
Source: Digital Look. Winner in bold.
It's a clean sweep for Reckitt in the second round, although it's close on the yield and dividend cover numbers.
You might be surprised to see negative dividend growth forecast for Unilever. The company's reporting currency is the euro, and the euro-pound exchange rate so far this year has been less favorable for sterling dividends than last year. So, while the dividend may advance year on year in euros, analysts are expecting a weaker year for shareholders who receive their dividends in sterling.
Round 3: balance sheet
|
|
Unilever |
Reckitt Benckiser |
|---|---|---|
| Price-to-Book (P/B) Ratio | 5.4 | 4.5 |
| Net Gearing (%) | 72 | 33 |
Source: Digital Look. Winner in bold.
Reckitt again overpowers Unilever in the final round, resulting in a three-rounds-to-nil win and a score of 11 points to Unilever's one.
Post-match assessment
The contest was not quite as one-sided as the final score suggests. As we saw, Unilever was only narrowly beaten on a few points in the dividend round. Nevertheless, this has to go down as a resounding victory for Reckitt.
Unilever's P/E rating is above its own long-run average and toward the top of its historical range. In contrast, Reckitt's P/E is below its long-run average.
Let me be clear, Unilever is a perfectly good company -- indeed, it was my pick of the sector 18 months ago -- but today's head to head suggests that, at current prices, value has swung away from Unilever and toward Reckitt.
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