The average annual TSR of the 1,620 companies in the sample was approximately 20%.
Some of the most successful value creators since the 2008 global financial crisis are companies that have figured out how to achieve a comprehensive TSR turnaround, according to a recent report by The Boston Consulting Group (BCG).
Companies that delivered below-average TSR during the previous five-year period had a 1 in 5 chance of making it into the BCG top-ten industry rankings for 2009-2013. By contrast, companies that delivered above-average TSR in the previous five-year period had only a 1 in 12 chance of making the rankings.
These are some of the findings released in the sixteenth annual BCG Value Creators report, Turnaround: Transforming Value Creation.
The 2014 Value Creators Rankings
The 2014 Value Creators rankings are based on an analysis of total shareholder return (TSR) at 1,620 global companies for the five-year period from 2009 through 2013. The rankings list the top ten value creators for the entire sample, for all large-cap companies (defined as those with a market valuation of more than $50 billion), and for companies in 26 separate industrial sectors.
Among the key findings:
The Dynamics of TSR Turnarounds
The results of this year’s report are influenced by the fact that the starting point of the five-year holding period occurred at the depths of the market downturn associated with the global financial crisis.
“Because the holding period of this year’s report starts in 2009, we thought it was important to ask, How much of the value creation performance of this year’s top value creators is due to these companies having been especially hard hit by the 2008 downturn, rather than to anything that they have done in the period since?” said Gerry Hansell, a senior partner in BCG’s Chicago office and a coauthor of the report.
“We estimate that about a fifth of the shareholder value that the companies in our top-ten rankings generated was a function of their depressed starting point compared to the market average. The rest, however, was due to superior performance. So although these companies benefited from an outsized market rebound, they obviously did a lot more than simply rise with the market.”
In fact, many of the winners in this year’s Value Creators rankings are what BCG calls TSR turnarounds. “TSR turnarounds are companies that deliver superior value creation after an extended period of below-average TSR performance and below-average valuation multiples,” said Frank Plaschke, a partner and managing director in BCG’s Munich office and a coauthor of the report. “Our research shows that companies with this starting position not only deliver more TSR, on average, than the other companies in our sample. They are also overrepresented in our industry top-ten rankings.”
Among the TSR turnarounds profiled in the report are the Mexican conglomerate Alfa, number one in the multibusiness top-ten ranking; disk drive maker Seagate Technology, number two in the technology top-ten ranking; and U.S. media company Gannett, which since March 2012 has tripled its share price and been one of the top value creators in the S&P 500.
The Advantage of a TSR Focus
The report also describes the value of using TSR as a lens to orchestrate such a turnaround. “Seagate’s consistent focus on the impact on TSR of its business and financial decisions helped the company and its senior executives navigate an extremely turbulent business environment, while still delivering industry-leading TSR,” said BCG senior partner and study coauthor Jeffrey Kotzen. “It has also led the company’s senior executives to reinvent their mind-set about the business and how best to drive value.”
In the future, TSR turnarounds will not just be leading value creators. Focusing on TSR and its drivers can also be a recipe for successful companies to maintain strong value-creation momentum or for mediocre ones to become top performers.
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