The Boston Consulting Group has recently published a study focused on value creation in a low-growth economy. The conclusion of the study was the brands should focus on value creation to deliver above-average shareholder returns. The study found that recession had great implications on how companies created this shareholder value, and despite the fact that many companies begun to recover after the recession, the market volatility remains high and most equity indexes remain flat in 2010.
A low growing economy poses major challenges for value creation, and companies are forced to find ways around this.
“For many companies, maintaining historical levels of revenue growth will only come by winning market share. Competitive intensity will increase and real winners (and lowers) will emerge,” BCG said.
For example, according to the report, lower revenue growth and declining valuation multiples made capital gains a less important value for TSR (total shareholder return). As multiples declined, the yield from payout of free cash flow increased, making direct payments to shareholders a more important source of TSR. Many companies will have the opportunity to achieve above-average shareholder returns in 2010 by emphasizing cash payout as the primary source of TSR.
To support their findings, BCG identified the premier “sustainable value creators” from 2000 to 2009, with Vale (Brazil), Reliance (India) and AmBev (Brazil) holding the first three spots. Reasearch in Motion (makers of BlackBerry) and Apple also made the top ten.
The most important conclusion of the report for businesses in general is that they need to stop focusing on the short-term revenue momentum and start managing for superior TSR over long-term. Download BCG’s report is available for free download here (pdf).
