Which blue-chip asset manager 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 blue-chip fund managers Schroders (LSE: SDR) and Aberdeen Asset Management (LSE: ADN).
Fund managers tend to be high-beta stocks, which means they rise faster than the market when the market is rising and fall further than the market when the market is falling.
The market has been buoyant of late, and the shares of Schroders and Aberdeen have outperformed the FTSE 100 index over the last three months. The Footsie is up 4%, but Schroders and Aberdeen have both soared 18%.
Let's take our seats at ringside.
Round 1: earnings
| | Schroders | Aberdeen |
|---|
| Recent share price | 1,214p* | 303p |
| Last year price-to-earnings (P/E) ratio | 10.5 | 15.1 |
| Current year forecast P/E | 12.2 | 14.3 |
| Four-year average earnings per share (eps) growth (%) | 3 | 13 |
| Current year forecast eps growth (%) | -14 | 5 |
| Operating margin (%) | 25 | 31 |
* Data in all the tables is based on the price of Schroders' non-voting shares (LSE: SDRC) which are cheaper than the voting shares (LSE: SDR).
Sources: Digital Look, Morningstar, company reports. Winners in bold.
Aberdeen takes the first round by a narrow margin, winning points on eps growth and operating margin, while Schroders wins points for its cheaper P/E rating.
The difference in the companies' forecast earnings growth (sourced from Digital Look) is striking, and Morningstar has an even wider gap between the pair.
Round 2: dividends
| | Schroders | Aberdeen |
|---|
| Last year dividend yield (%) | 3.2 | 3.0 |
| Current year forecast dividend yield (%) | 3.3 | 3.5 |
| Four-year average dividend growth (%) | 7 | 13 |
| Current year forecast dividend growth (%) | 3 | 17 |
| Forecast dividend cover | 2.5 | 2.0 |
Sources: Digital Look, Morningstar, company reports. Winners in bold.
Again, Aberdeen comes out on top in a closely fought round. Schroders scores on historic dividend yield, but analysts' forecasts of strong dividend growth for Aberdeen take its prospective yield above Schroders. Aberdeen's historic dividend growth is also superior, while Schroders takes a point for its more conservative cover.
Round 3: balance sheet
| | Schroders | Aberdeen |
|---|
| Price-to-book (P/B) ratio | 2.2 | 3.5 |
| Net gearing (%) | -123 | -12 |
Sources: Digital Look, Morningstar, company reports. Winners in bold.
Schroders finishes strongly, taking both points in the final round. It's worth noting that both companies have strong balance sheets, the negative gearing figures indicating net cash in the books. Schroders' balance sheet is particularly strong and it's no surprise to find it highly rated by credit-rating agencies Fitch (A+) and Standard and Poor's (A).
Aberdeen takes the contest by two rounds to Schroders' one. However, when the individual points are tallied up, the firms come out all square with six points a-piece.
Post-match assessment
There's been good momentum in Aberdeen's business in the last few years and the company' valuation has increased to the extent that it was promoted to the FTSE 100 in March this year. Clearly, analysts are expecting the momentum to continue and the company is on a relatively high P/E of 14.3.
Meanwhile, Schroders' progress has been less dynamic, forecast earnings for the current year are pretty miserable, and the company is on a relatively low P/E of 12.2.
Neither company's P/E rating screams "bargain", and both dividend yields are below the market average. As I mentioned earlier, the Footsie has been buoyant of late and Schroders' and Aberdeen's shares have risen very strongly over the last few months. With high-beta fund managers being effectively a geared play on the market, I generally like to invest in them after the market has fallen -- and the bigger the fall the better!
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> G A Chester owns shares in Schroders, but does not own shares in Aberdeen Asset Management.
