Iron ore titan BHP Billiton Limited (ASX: BHP) and banking major Westpac Banking Corp (ASX: WBC) have both managed to get through to the second round of the Motley Fool's ASX World Cup series, but their performances have been far from similar. BHP managed three wins in the first round, scoring a massive nine goals while Westpac only just scraped through ahead of National Australia Bank Ltd. (ASX: NAB).
With everything at stake, both teams will be desperate for a place in the last eight. Let's take a look at how the pair line up:
| BHP Billiton | Westpac | |
| ASX:BHP | ASX:WBC | |
| Recent Price | $36.42 | $34.17 |
| Market Capitalisation | $117 billion | $106.2 billion |
| Forecast Dividend Yield | 3.5% | 5.3% |
| Projected P/E ratio | 12.7 | 14.2 |
| Price-book ratio | 2.5 | 2.3 |
| Price-Earnings Growth (PEG) Ratio | 1.5 | 3.4 |
Source: Morningstar Research
First Half
BHP Billiton is Australia's largest diversified miner and second largest iron ore miner, behind Rio Tinto Limited (ASX: RIO). While earnings are largely dependent on fluctuating commodity prices, the miner has set itself a solid defence by diversifying operations heavily, focusing on iron ore, copper, coal and petroleum, as well as potash. Westpac may struggle to exploit this defensive structure…
Westpac, which is Australia's second-largest bank, has performed brilliantly in the years leading up to this tournament, smashing the returns made by the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) and delivering juicy fully franked dividends. The bank also boasts a solid defensive structure, maintaining an APRA Basel III Common Equity Tier 1 ratio of 8.82%.
Scores are level at the midway point.
Second Half
While the defensive structures set by both teams could make it difficult to score today, Westpac will be kicking into the wind in the second half which could see the bank tire.
Westpac's returns have been nothing short of brilliant in recent years, thanks to its strong dividend yield, rampaging profits and the low interest rate environment. However, as can be seen from the table above, its shares are by no means cheap! It's trading on a P/E ratio of 14.2 and a Price-Book ratio of 2.3, indicating that investors believe it will continue to deliver strong returns in the long run. Unfortunately, interest rates and bad debt charges will inevitably rise which could well see Westpac's shares lose ground over time.
In contrast, BHP Billiton's future is looking very bright. It is heavily exposed to coal and potash, for which demand is expected to soar over the coming decades, while it is heavily reducing costs and improving productivity measures. Its 3.5% dividend yield unfortunately couldn't match up against Westpac's, which allowed the bank to score one goal, but the chances of capital gains are far greater.
Full Time
BHP Billiton and Westpac are both high quality businesses and will continue to act as cornerstones for Australia's economy. However, it seems that Westpac's skyrocketing returns may be nearing an end while BHP Billiton could just be getting started.
Although Westpac's solid dividend helped the bank score one goal, it fell away late in the match to grant BHP a ticket to the last eight with a 2-1 win.
There's just ONE DAY remaining!
