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 tobacco groups British American Tobacco (LSE: BATS.L) and Imperial Tobacco (LSE: IMT.L).

Fears about the global economy and the sovereign debt crisis in Europe have made defensive companies -- companies that perform reasonably well in all economic conditions -- a popular, and rewarding, choice for investors over the past year or so. However, the market's been in a somewhat more upbeat mood lately and many defensives have come off the boil.

The FTSE 100 has risen 7% over the last three months, comfortably outperforming British American Tobacco (up 2%) and Imperial Tobacco (down 3%).

Let's take our seats at ringside.

Round 1: Earnings




Recent share price (pence)



Last-year price-to-earnings (P/E) ratio



Current-year forecast P/E



Four-year average earnings per share growth (%)



Current-year forecast EPS growth (%)



Forecast operating margin (%)



Sources: Digital Look, Morningstar, company reports. Winners in bold.

The companies are evenly matched in the first round. Imperial scores strongly on historic and forecast P/E and shares a point with BAT on forecast earnings growth, while BAT takes points outright for historic earnings growth and forecast operating margin.

Round 2: Dividends




Last-year dividend yield (%)



Current-year forecast dividend yield (%)



Four-year average dividend growth (%)



Current-year forecast dividend growth (%)



Forecast dividend cover



Sources: Digital Look, Morningstar, company reports. Winners in bold.

Imperial wins the second round quite comfortably, taking the points on all the forecast measures. BAT scores a point for historic dividend growth and shares a point with Imperial on historic yield.

Round 3: Balance sheet




Price-to-book ratio



Net gearing (%)



Sources: Digital Look, Morningstar, company reports. Winners in bold.

The points are shared in the final round. It's worth noting that the companies have high gearing compared with the average in many other industries -- not quite as high as utilities, but reflecting the reasonable stability and visibility of earnings in a business dealing in addictive products.

This was a close-fought contest with the companies drawing two rounds and Imperial winning one. However, the victory doesn't look quite so tight on the overall points tally, with Imperial scoring seven points and BAT five.

Post-match assessment
Both companies have delivered historic earnings and dividend growth well ahead of inflation, BAT being particularly strong on these measures. However, Imperial is stronger on forecast growth.

On the question of which firm is the better buy today, it's notable that Imperial scored points on all the valuation ratios -- P/E, dividend yield, and P/B -- while BAT could only share a point with Imperial on one of these measures.

BAT has been a great investment for long-term shareholders, but at today's share prices Imperial is on a markedly cheaper P/E. Imperial's forecast 11.8 times earnings doesn't look too high a price to pay, particularly with a prospective yield above the market average at 4.5%.

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