X hits on this document

108 views

0 shares

0 downloads

0 comments

30 / 52

What kind of improvement in TSR was necessary to achieve truly superior performance, given the sample av- erage? A company had to deliver an average annual TSR of at least 12 percent per year to be in the top quartile of the global sample and 43.2 percent per year to make the top ten. The most successful companies delivered TSR above 50 percent per year, and as much as 74 percent.

Exhibits 1 and 2, and the exhibits in the “Global Rank- ings” and “Industry Rankings” themselves, suggest four other broad trends of interest:

  • The big industry winner in this year’s rankings—the utilities sector, with a weighted average annual TSR of

    • 10.9

      percent—may seem surprising. Although sales growth in the sector was only average, the utilities sample had the highest dividend yield of all our in- dustry samples—4 percent. When this above-average dividend yield is combined with the impact of debt reductions in the sector and the increase in shares

outstanding, the total free-cash-flow contribution was five percentage points of TSR—nearly half the indus- try average. What’s more, the utilities sector was the only one to actually see its EBITDA multiple grow, on average. Clearly, the sector’s ability to generate and pay out cash played a major role in its success and perhaps even served to put a floor under industry multiples at a time when they were declining through- out the economy.

  • In every other industry and in the sample as a whole, declines in EBITDA multiples destroyed TSR. Oen, what separated the top ten in many samples from the rest was their ability either to improve their mul- tiple while industry multiples were declining on the whole, or at least to limit the damage of an industry- wide decline. (An exception is the mining and materi- als sector, in which multiple declines destroyed slight- ly more TSR for the top ten than for the sector as a whole.)

Exhibit 1. With the Exception of the Utilities Industry, Declines in Valuation Multiples Have Substantially Eroded TSR

Machinery and construction

8.0

Chemicals

6.1

Consumer goods

5.6

Transportation and logistics

3.7

Retail

2.2

Technology and telecommunications

1.3

Pharmaceuticals and medical technology

1.3

Value creation

Travel and tourism Media and publishing Multibusiness Automotive and supply Pulp and paper Total sample

  • 0.5

  • 1.8

  • 2.6

  • 4.5

  • 6.7

2.9

TSR1 (%)

Utilities

10.9

Mining and materials

9.1

6

1

–2

3

8

1

–7

2

8

2

–9

2

Sales

Margin

Multiple

Dividend

growth (%)

change (%)

change (%)

yield (%)

–8

1

–10

3

–10

5

–12

0

–11

1

–7

–2

1

–7

+

Valuation multiple

+

6

–14

7

–10

–6

=

Fundamental value

2

1 3

3

3 2

3 2

9

10 7

4 10 6

1

8

  • 1

  • 4

8

–4

17 10 13

–2

3

4

3 2

2

Cash flow contribution

0

–1

1

–1

0

–1

1

–2

–3 –4

0 0

–5 –1

Share

Net debt

change (%)

change (%)

  • 1

  • 2

  • 1 0 0

  • 2

2

  • 1

  • 1

  • 1

  • 1

1

  • 2

  • 1

  • 3

0

Sources: Thomson Reuters Datastream; Thomson Reuters Worldscope; Bloomberg; annual reports, BCG analysis. Note: Decomposition is shown in percentage points of five-year average annual TSR; apparent discrepancies with TSR totals are due to rounding. 1Five-year average annual TSR (2004–2008) for weighted average of respective sample.

  • 

    T B C G

Document info
Document views108
Page views108
Page last viewedSat Dec 03 12:58:41 UTC 2016
Pages52
Paragraphs5589
Words24744

Comments