Our global Value Creators Report series analyzes the world’s top performing companies each year to build an understanding of what drives the performance of leading players across all industries.
Each year, in the Australian Value Creators Report, we look at how the Australian market is performing relative to global peers, how different sectors are performing within Australia, and which companies are creating the most value.
So, what makes some companies more successful in creating value than others? Which sectors have sustained strong performance? And what role can shareholders play in the value creation agenda?
This year’s report explains that, despite persisting economic and political uncertainty, the S&P ASX 200 (ASX 200) rebounded well in 2016, going from negative returns in 2015 to a one-year total shareholder return (TSR) of 13.2% in 2016. The ASX 200’s five-year TSR performance also improved on 2015, with a return of 11.2% per year.
The Healthcare sector was once again the stand-out performer with a one-year TSR of 25.5% and five-year TSR of 26.1%. The “rebound” story is perhaps best exemplified by Mining and Materials, which generated a one-year TSR of 22.6% after enduring some tough years.
Top-quartile performance in 2016 required a five-year TSR of 26.2% per year. At least one company from each of the 11 sectors in the index met this threshold, which was the highest since 2009.
In 2016, despite persisting economic uncertainty, Australia’s largest companies demonstrated that shareholder value can be created across all sectors, regardless of broader macroeconomic trends.
The ASX 200’s one-year TSR was similar to but slightly below that of the United States; however, Australia did outperform Europe and Japan. The ASX 200's five-year TSR trailed Japan’s and Europe’s but was higher than that of emerging markets.
In the US and Europe, however, the strongest driver of TSR was change in valuation multiple, reflecting improving growth expectations. Cash flow made a similar contribution in both markets. Weak profit growth in Europe suggests that companies are struggling to identify and capitalize on the next wave of growth opportunities.
Creating value as a management team is always a challenge, especially through persisting uncertainty. A growing number of shareholder activists are using a variety of levers to unlock value. We have identified six levers that activist investors frequently use to deliver value.