2014 has been a very different experience for shareholders of Metcash Limited (ASX: MTS) and Automotive Group Holdings Ltd (ASX: AHE). That's because, while shares in Automotive have gained a rather lacklustre 1%, Metcash's performance has been much worse, with shares in the company falling by 9%. However, does this mean that Metcash now offers better value for money than Automotive, or is Automotive poised to extend its outperformance of Metcash going forward?
Differing valuations
Metcash's share price fall has meant that it is now much more keenly priced than Automotive. For example, Metcash trades on a P/E of just 11.3, which is lower than Automotive's P/E of 13, and even further below the ASX's P/E of 16.2. This shows that Metcash could have more scope for an upward rating revision than its peer, although it must be said that both stocks seem to offer good value relative to the wider index.
Income prospects
The story is similar when it comes to yields. Both companies offer fat, fully franked yields that should appeal to investors and savers alike, with Metcash again pipping its retail peer. It offers a yield of 5.8%, while Automotive's yield is slightly behind at 5.4%. This gap has, to some extent, been caused by the previously mentioned divergence in share prices over the course of 2014, although even if share prices stay where they are the gap could narrow over the next couple of years.
That's because, while Automotive is forecast to increase dividends per share by 10.8% over the next two years, Metcash is due to do the opposite and reduce them by 7.6% over the same time period. As a result, Automotive could prove to be the better income play despite its lower present yield.
Looking ahead
In addition, Automotive offers stronger growth prospects than Metcash. While it is expected to increase EPS by 14.8% over the next two years, Metcash is forecast to see its bottom line fall by 6.1%.
So, while Metcash has a lower P/E than Automotive right now, as with the difference in yields, much of the gap to Automotive's P/E could be eroded by anticipated changes in earnings over the next two years. Indeed, as a result of the better income and earnings growth potential on offer, Automotive appears to be a better buy than retail peer, Metcash, at this moment in time.
