Head To Head: Experian vs Intertek

Published in Investing on 5 December 2012

Which analytical services group should you buy today?

In this series, some of your favourite 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 analytical services companies Experian (LSE: EXPN) and Intertek (LSE: ITRK).

Experian provides a range of data and analytical tools to businesses around the world, but is probably best known to consumers for its credit score services. Intertek provides testing, inspection and certification services for a range of global industries and markets.

The shares of both companies have outperformed the FTSE 100 over the past six months. The Footsie is up 12%, but Experian is up 16% and Intertek 19%.

Let's take our seats at ringside.

Round 1: earnings

 ExperianIntertek
Recent share price1,040p3,104p
Last year price-to-earnings (P/E) ratio21.128.5
Current year forecast P/E19.724.2
Four-year earnings per share (EPS) compound annual growth rate (CAGR) (%)822
Current year forecast eps growth (%)718
Forecast operating margin (%)2514

Source: Digital Look. Winners in bold.

Experian comfortably wins the points for P/E, but Intertek dominates the scoring on earnings growth. The first round is decided in Experian's favour when it takes the final point -- for superior operating margin.

Round 2: dividends

 ExperianIntertek
Last year dividend yield (%)2.01.1
Current year forecast dividend yield (%)2.01.3
Four-year dividend CAGR (%)1517
Current year forecast dividend growth (%)320
Forecast dividend cover2.53.2

Source: Digital Look. Winners in bold.

It's a similar story in round two. Experian again takes the first two points and Intertek hits back with its growth numbers. Again, the round is decided on the final point -- but this time in Intertek's favour for its more conservative dividend cover.

You may have spotted that Experian's historic dividend growth rate has been almost double its EPS growth rate. The reason for that is Experian has increased the proportion of earnings it pays out in dividends over the period, and dividend cover has fallen from over 3 to 2.5.

Round 3: balance sheet

 ExperianIntertek
Price-to-book (P/B) ratio5.89.1
Net gearing (%)70111

Source: Digital Look. Winners in bold.

Experian finishes with a flourish, taking both points in round three and the overall contest by two rounds to one. The total points tally is Experian seven and Intertek five.

Post-match assessment

Experian not only won the contest but, in the process, took all five of the valuation-ratio points I use in these head-to-head battles: historic and forecast P/E, historic and forecast dividend yield, and P/B.

However, while Experian scores well on value relative to Intertek, its rating is nevertheless very high: the P/E around the 20 mark is way above the market average and the 2% dividend yield is way below.

Experian and Intertek have grown their earnings and dividends strongly through the last very tough five years. The trouble is, the market is only too aware of it and the shares have rated ever-increasingly higher since 2008/9.

Both companies gave the market bullish updates last month, but will have to keep delivering again and again to justify their current lofty ratings. Any slip-ups at these heights could be painful.

If you're more interested in 'value' shares, you should be looking for companies on lower P/Es and higher yields, rather than stocks the market is madly in love with.

Top City investor Neil Woodford has thrashed the market over the past 15 years precisely by investing in dividend-paying blue chips when other investors are shunning them.

You can take the opportunity today to help yourself to a free and exclusive Motley Fool report where you'll learn about Woodford's enormously successful strategy and eight of the companies he currently favours. If, like me, you're not afraid to learn from the best, you can download the free report right now: simply click here.

> G A Chester does not own shares in any of the companies mentioned in this article.

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