Top ten value large-cap value creators experience steady growth

05 October 2017 Consultancy.uk

According to new data, value creation among the world’s largest companies has been relatively steady, with Netflix seeing the most sustained growth at 65% between 2012 and 2016. In terms of long-term value creation, Amazon has performed remarkably well since going public, with average annual returns of 33%.

The business world continues to find itself in a period of flux, with new technologies, business models and changes to what consumers find important affecting companies, large and small. In a new report from the Boston Consulting Group, the global strategy consulting firm maps the top ten large-cap value creators in the world. The research leveraged the firm’s database, which covers more than 19 years of data and 200 of the world’s largest firms.

Netflix, whose business model has disrupted traditional broadcast industries, takes the number one spot. The company has rapidly grown to around 100 million subscribers for its on-demand video service – which enables viewers to avoid advertising, while selecting when and where they choose to watch – has been a major hit, particularly among the millennial generation. The move has also significantly disrupted both the television and film industries, who have begun to examine on-demand offerings of their own to combat diminishing market shares. The company and its shareholders have seen solid growth between 2012 and 2016. With market capitalisation of around $53 billion, the average annual TSR has been 65.7% over the period. TSR for 2017 has been a little more reserved, at 20.7%.

The top ten large-cap value creators

Nvidia, known for its line of graphics processors takes the number two spot. The company is worth around $57 billion today, with the TSR between 2012 and 2016 at 52%. TSR for the company stood at around 35% in 2017. Chinese media and publishing giant Tencent Holdings, with market capitalisation of $229 billion, has seen a steady TSR of 47% annually on average between 2012 and 2016. Broadcom and Charter Communications round out the top five, with average annual TSR across the period 2012 and 2016 of around 46% and 35%.

Amazon makes the top ten too, highlighting its ascension in the retail market as it blends technology and consumer product demand – TSR stood at 34% with an impressive market capitalisation of around $356 billion. The Bank of America was the only financial institution in the top ten, with average annual TSR of 33%.

Value creation across industries

The research also considered the median TSR, as well as industrial outliers. Interestingly, the median value between 2012 and 2016 was relatively comparable within a wide range of industries. The best performers however, were in mid-cap pharma, with a median TSR of 24%, and the top performer coming in at 99%. Consumer durables also performed strongly, at 23%, followed by automotive components, at 22%.

Across the range of various industries, only extractive and commodity related industries have fallen below double digit TSR medians. Banking, meanwhile, noted the biggest negative TSR score of -53% annually between 2012 and 2016. Construction and mining followed, with the worst performers on -39% and -24% respectively. Building materials and green energy and environment saw two of the largest positive TSRs, at 113% and 95% respectively.

Consistent long-term large-cap value creation

The consulting firm also looked at the best performers in terms of consistent, long-term large-cap value creators. The study noted that pharma company Ceigene, the best performer, has managed to boast a 20-year TSR of 32%. A second pharma company, Gilead sciences saw its 20-year TSR come in at 26%, while Dutch technology firm ASML generated TSR of 19% over a period of 20 years. Adobe has managed a TSR of 17%, while Altria Group also generated TSR of 17%.

Amazon and Reynolds America were also noted as star performers by the firm. However, both had their IPOs within the 20-year period. The former has generated TSR of 33% since its IPO, while the latter, 22%.

“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.”

News

More news on