These 2 South African companies are among the best in the world for creating value for shareholders
While US firms dominate the list of the world’s top value creators, two JSE-listed South African companies – Naspers and Bidvest – also feature in the 2017 rankings published by the Boston Consulting Group (BCG).
BCG’s annual rankings of top value creators is measured on the basis of total shareholder return (TSR) over the previous five-year period. The 2017 rankings reflect an analysis of TSR at approximately 2,350 companies globally from 2012 through 2016.
TSR measures the combination of share price gains and dividend yield for a company’s stock over a given period. It is the most comprehensive metric for performance in shareholder value creation. Average annual TSR represents the amount of TSR that a company delivered, on average, over the five year period.
In addition to providing a large-cap ranking of five-year TSR at the world’s 200 largest companies by market valuation, the 2017 Value Creators rankings include rankings of the top ten value creators in 32 industry sectors.
Among industry sectors, mid-cap pharma ($4 billion to $17 billion in market cap) ranks first in average value creation, as it did in 2016. Other top-five sectors are consumer durables, automotive components, financial infrastructure providers, and medical technology.
Long-term success stories
BCG also looked at long-term and consistent value creation. From 1996 through 2016, nine companies among the largest 200 have been top-quartile value creators in at least three of the four 5-year periods.
They top the consistent value creators list for the past two decades because they generated average annual TSR numbers of 17% to 32% a year over 20 years.
Two are pharma companies, two are tech firms, and two are tobacco companies. One comes from media and publishing, and one from health care. Amazon straddles tech and retail. Seven are based in the US, one in the Netherlands, and one in South Africa – Naspers.
Naspers continues to drive the Johannesburg Stock Exchange to record levels, breaking the R3,000 a share mark last week, thanks mainly to its investment in Chinese technology firm, Tencent, which features on Boston Consulting Group’s top 10 list of large cap companies.
Large-cap top 10, 2012–2016
Another star performer from South Africa is Bidvest, a diversified trading, distribution and services group, which on Monday reported a 6.2% rise in headline earnings to R3.7 billion for the year ended June 2017.
Group revenue increased 4.0% to R71 billion, while trading profit grew 4.6% to R6 billion.
Bidvest operates through seven core divisions: services, freight, automotive, office and print, commercial products, financial services and electrical, and was listed as a standout by BCG in the multi-business segment.
In May 2016, Bidvest split into two different companies unbundling its food service assets into a separate entity called Bidcorp.
Read: How South Africa’s biggest companies have performed in 2017 so far
Multi-business Top 10, 2012–2016
“For consistent value creators, the strong tailwinds of a growth industry help. But far more important are management’s understanding of different value delivery models, its willingness to adapt its strategy and capital allocation to meet evolving conditions, and its ability to balance short-term targets and longer-term TSR goals,” said Jeff Kotzen, a BCG senior partner.
“Regardless of time frame, top performers set their sights on winning in their industry or peer group—and they deliver.”
Added Gerry Hansell, a BCG senior partner: “The likelihood of beating the market—especially by a wide margin—year in and year out, is low. For companies in mature industries, the challenge is even greater because growth is such an important driver of long-term TSR.
“That said, companies in mature industries still can drive value creation by improving efficiency, allocating capital prudently, and returning cash to shareholders rather than investing it in low-return growth opportunities.”
Read: Naspers doesn’t have another genie in the bottle: opinion
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