Australia is the envy of the world, right? Economic growth, even during the depths of the global financial crisis, strong currency, low inflation, cheap finance, good employment (albeit weakening) and massive ships queuing over the horizon to take bulk ore to foreign markets.
That’s all correct in a smug and comforting way. So, why is Australia behind global leaders when it comes to value in the share market?
Despite all our advantages Australia’s top companies lag behind their peers in the US in creating value for shareholders, says Boston Consulting Group’s (BCG) latest annual Value Creators Report, a study of 6,000 companies.
The top 200 Australia companies achieved a Total Shareholder Return (the sum of dividends and any capital gains) of 7.2 per cent in the two years to the end of June 2013.
This is almost half the 12 per cent achieved by US companies in the S&P 500, despite significantly slower economic growth.
Looking over five years, the picture is worse with the top companies in Australia returning less than half the value of US companies, 3.3 per cent compared to 6.9 per cent.
The reason is confidence, the lack of it.
Of course there are exceptions such as the banks and there are other companies which have performed the amazing double flip of cost cutting AND growth.
Boston Consulting Group has identified 13 stocks which have outperformed the market in terms of value, providing sustained dividends and capital gains.
Value creation will become more challenging for local companies as the economy slows and companies will need to find new ways to achieve growth to satisfy investors.
BCG partner Ramesh Karnani says the analysis of ASX200 company results showed that both increased revenues and high returns are needed to deliver superior value creation for shareholders.
“Growth and cost reduction are often seen as conflicting goals, but the best value creators are able to achieve the right blend of both,” he says.