investors seek new ways to create...
Post on 26-Jun-2020
3 Views
Preview:
TRANSCRIPT
Investors Seek New Ways to Create Value2016 BCG Investor Survey
May, 2016
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 1
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Executive Summary
In February 2016, The Boston Consulting Group launched its eighth annual Investor Survey for portfolio
managers, buy-side analysts, and sell-side analysts
• The purpose was to understand investors' views on the state of capital markets and on priorities for
companies to drive value creation
• The survey was launched in partnership with Thomson Reuters, ensuring a broad global perspective
• Over 725 individuals from around the world completed the full survey, representing over $2.7 trillion in
assets under management
Several key themes emerged from the survey:
• Investors' short-term outlook is much more bearish in 2016, also affecting TSR expectations– 32% of investors are (very) bearish, which is the highest since 2009, reflecting high uncertainty– The three-year market average return expectation is down to 5.5% annually, owing to the impact of a
–3% decline in valuation multiples
• Expectations for cash payouts are record high, but appetite for more may be limited – Investors' expect a 4.4% payout yield going forward (80% of TSR), continuing the upward trend in
expected cash returns over the past few years– At the same time, investors may now see cash returns as "table stakes" and prioritize reinvestment and
potentially deleveraging (due to rising interest rates) over higher payouts
The need for strategy is stronger than ever, as investors seek the next wave of value creation• Investors prioritize companies' strategy and management credibility in making investment decisions,
although key TSR drivers (such as growth outlook, room or P/E and margin improvement) remain important• Strategically, investors see opportunities in R&D investments and portfolio shaping (M&A and divestitures)• Investors see improvement potential in companies' strategic management processes, such as capital
allocation and strategy development and planning
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 2
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
Context for 2016 Investor Survey
Findings from 2016 Investor Survey
• Short-term concerns, reverting to positive mid-term outlook
• Steeply lower TSR expectations due to multiple decline
• Strategic avenues for value creation
Takeaways and implications for companies
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 3
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
2016 BCG Investor Survey is the 8th annual edition
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 4
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The 2016 BCG Investor Survey is based on 729 respondents
from a diverse pool (I/II)
37
17
11
12
8
4
11
0
25
50
75
100
<$500M
$500M to $1B
$1B to $2B
$2B to $5B
$5B to $10B
$10B to $20B
$20+ B
2016Source: 2016 BCG Investor Survey.Note: Value of fund assumed to be midpoint of interval or $0.25B for the low, $30B for the top.1. Based on 521 respondents who indicated a fund size; the rest chose not to disclose or were N/A.
Respondents (%)
Investors represent
$2.7T+ in assets1
60% of investors have
time horizon of <3 years
Almost half are
portfolio managers
15
24
38
22
0
25
50
75
100
N/A
5 years and greater
3 – 5 years
1 – 3 years
1 month – 1 year
Less than 1 month
2016
1
Respondents (%)
48
24
28
0
25
50
75
100
Sell-side analyst
Buy-side analyst
Portfolio manager
2016
Respondents (%)
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 5
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
62
22
9
6
0
20
40
60
80
100
Hang Seng Index
Nikkei 225
2016
1
S&P 500
Euro Stoxx 50
FTSE 100
29
29
16
14
11
0
20
40
60
80
100
Europe
North America
Global
Asia
Other (Africa, Australia /
New Zealand, Middle
East, S. America)
2016
The 2016 BCG Investor Survey is based on 729 respondents
from a diverse pool (II/II)
But geography is very diverseS&P 500 is dominant index
Source: 2016 BCG Investor Survey.
Respondents (%) Respondents (%)
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 7
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
Context for 2016 Investor Survey
Findings from 2016 Investor Survey
• Short-term concerns, reverting to positive mid-term outlook
• Steeply lower TSR expectations due to multiple decline
• Strategic avenues for value creation
Takeaways and implications for companies
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 8
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Bearish sentiment for 2016: Sharp increase – highest since '09
46
14 15 2014
18
30
31
46
32
46
38
49 35
37
15
37
50
33
51
3744
30
8 10
100
80
60
40
20
0
2013
0
2015
Respondents (%)
1
2
2014
0
1
2012
0
1
2011
0
3
2010
0
3
2009
00
2016
2
1
Source: 2016 BCG Investor Survey.
Extremely bearishBearishNeutralBullishExtremely bullish
Where would you place yourself on the bear-bull spectrum for the 2016 performance of equity
markets you follow/invest in?
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 9
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Bearish across indices, with Euro Stoxx most affected
23 2930 35
47
34
43 3837
35
41
29 28 2519
80
100
60
40
20
0
S&P 500
1
1
Hang Seng Index
(%)
FTSE 100
1
1
0
0
Nikkei 225
0
0
Euro Stoxx 50
2
1
Source: 2016 BCG Investor Survey.Note: Because of rounding, percentages may not add up to 100.
Extremely bearishBullish Neutral BearishExtremely bullish
Where would you place yourself on the bear-bull spectrum for the 2016 performance of equity
markets you follow/invest in?
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 10
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Bearish sentiment for 2016 is driven by emerging market
investors – more bullish outlook for next 3 years
Bearish sentiment
in the short term
Particular concentration
in developing countries
However, more than half
bullish about 2018
30
37
30
% 100
80
60
40
20
0
2016
2
1
16
33
48
0
3
2018
27 2736
3935
38 3933
3441
34 32 3024
18
5
%
Other1
1
Asia
1
2
Global
0
2
US
1
1
Europe
1
1
Extremely bearishNeutral
BearishBullish
Extremely bullish
Source: 2016 BCG Investor Survey.Note: Survey question: "Where would you place yourself on the bear-bull spectrum for the remainder of 2016 (/over the next 3 years) performance of the equity markets you follow / invest in (using today as the starting point)?" Because of rounding, percentages may not add up to 100.1. Africa, Australia and New Zealand, Middle East, South America
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 11
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Main concerns around China and other emerging markets, but
some investors encouraged by valuations and US economy
-75 -50 -25 0 25 50 75
19%
Respondents (%)
US presidential election 4% 11%
Global political climate 5%25%
Public sector debt and spending 5%20%
Demographics and migration 6%8%
Other EM economic growth 10%34%
Foreign exchange rates 10%28%
Other commodity prices 11%27%
China economic growth 12%72%
Momentum since start of 2016 21%31%
Interest rate development 24%23%
EU economic growth 27%
Priv. sector demand/consumption 30%25%
Oil prices 37%47%
US economic growth 44%30%
Stock market valuations 67%41%
Source: 2016 BCG Investor Survey.
Why are you ______ on equity markets for the remainder of 2016?
.. Bearish .. .. Bullish ..
Diverse picture reflects current uncertainty in market
26%
14%
10%
5%
8%
1%
10%
60%
16%
18%
24%
2%
15%
20%
7%
Net
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 12
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Deep dive: Investors expect a moderate impact of interest
rate increases, regardless of time horizon
11
31
39
18
1
0
10
20
30
40
50
Respondents (%)
No impactSome
impact
Moderate
impact
Substantial
impact
Massive
impact
Source: BCG investor survey conducted in Q1 2016
13
24
41
19
2
0
10
20
30
40
50
No impactSome
impact
Moderate
impact
Substantial
impact
Massive
impact
Respondents (%)
What impact do you expect the recent rise in US Federal Reserve
interest rates will have on global equity market returns....
... in 2016? ... over the next 3 years (2016–2018)?
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 13
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Industry expectations: Recent top performers (HC, tech) and
bottom-of-cycle industries (oil, mining) to outperform
78
77
73
70
65
59
56
52
51
48
47
47
47
46
10050050
Insurance 19
Consumer Non-Durables 11
Banks 24
Communication 20
Transportation & Logistic 21
Aerospace & Defense 22
Mining 34
Building Materials 12
Travel & Tourism 7
Oil 22
Technology 7
Health Care 5
Medical Technology 3
Biopharma 9 43
43
42
40
40
38
36
36
35
33
30
28
28
50050
Machinery 29
Automotive OEMs 27
Multibusiness / Conglomerates
18
Metals 27
14
Forest Products 22
Media & Publishing 28
Retail 22
Automotive Components 25
Fashion & Luxury 26
Power & Gas Utilities 28
Construction 13
Consumer Durables 14
Chemicals
How do you expect the industries/sectors that you primarily invest in/cover to perform over the
next three years, relative to the general market?
Source: 2016 BCG Investor Survey.
Underperform the overall marketOutperform the overall market
Respondents (%)
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 14
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
Context for 2016 Investor Survey
Findings from 2016 Investor Survey
• Short-term concerns, reverting to positive mid-term outlook
• Steeply lower TSR expectations due to multiple decline
• Strategic avenues for value creation
Takeaways and implications for companies
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 15
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
5.5
6.56.57.1
6.67.1
7.5
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016
TSR (%)
10.1
TSR
expectations
as of Q1 of
each year1
S&P 500 long-
term average2
TSR expectations at historically low level
~1% of TSR expected to come from stock price
appreciation, with rest from cash yields
-3.0
-1.9-0.6
-0.2-1.1
1.3
2
1
0
-1
-2
-3
20162015
-1.1
20142013201220112010
4.1
4.55.0
4.03.94.24.1
0
2
4
6
2010 201620152014201320122011
Estimated impact of P/E Multiple adjustment
2.5
1.9
0
1
2
3
2010 201620152014201320122011
Expected buyback yield1 3Expected dividend yield 1
Earn
ing
s
gro
wth
(%
) P
/E M
ult
iple
(%
)D
iv. &
Bu
yb
ack
pre
dic
tio
ns (
%)
1
2
3
TSR expectations: Bearish market sentiment drops 3-year
outlook to 5.5% annually, lowest in Investor Survey history
Annualized earnings growth expectations for next 3 years1
Sources: BCG Investor Surveys 2010–2016.1. Expectations calculated as weighted average of midpoints of answer choice interval, weighted by distribution of responses. 2. Market-capitalization-weighted average yield for S&P 500 companies, 1926–2014. 3. 2010–2014 survey data based on all respondents (80+% most familiar with S&P 500); 2015–2016 survey data based solely on respondents most familiar with S&P 500. 4. Calculated by subtracting estimated earnings growth, dividends, and buyback yields from estimated TSR.
Based on TSR predictions4
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 16
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.Earnings growth: expect ~ 4%
contribution to TSR
Investors expect 5.5% TSR in 2016
Dividend and repurchase yields
expected to contribute ~4%
3527
139
180
20
40
TSR expectation (%)>1210-128-106-84-62-40-2
4
<0
3
2
13
40
32
11
2
0
10
20
30
40
0-2<0 >86-84-62-4
Respondents (%)
Backup: Earnings growth, dividends, and repurchases
expected to be the largest drivers of TSR
571316
2517
97
0
30
>3.53.0-
3.5
2.5-
3.0
2.0-
2.5
1.5-
2.0
1.0-
1.5
0.5-
1.0
<0.5
261416
40
1840
0
30
60
>4.03.5-
4.0
3.0-
3.5
2.5-
3.0
2.0-
2.5
1.5-
2.0
1-
1.5
<1
Dividend yield expectation (%)
Respondents (%)
Respondents (%)
f
P/E Multiple contraction :
Implied decrease of (3%)
Earnings growth expectation (%)
Net repurchase yield2 expectation (%)
Source: 2016 BCG Investor Survey.
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 17
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
-1.1% 0%
Lower TSR expectations despite similar net income growth
and above-average payout yields
Percentage point change from the
five-year average1-1.7%2+0.6%
5.5
4.1
-4
-2
0
2
4
6
Estimated TSR and sources (%)
Implied multiple
compression3
-3.0
Dividend yield and
share repurchases
4.3
Earnings growthTSR
Source: 2016 BCG Investor Survey.1. For S&P 500 only. 2. Based off deviance from implied average historical multiple - Calculated by subtracting historical averages of estimated earnings growth, dividends + buyback yields from estimated TSR.
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 18
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Valuation deep-dive: Investors remain concerned
Source: 2016 BCG Investor Survey.1. Survey question was asked based on index preference; results were combined for all indexes. 2. Average percentage points by which investors believe the index they are most familiar with is overvalued or undervalued. Expectations calculated as weighted average of midpoints of answer choice intervals, over 60% deemed as 65%. 3. Median for all companies in index . 4. As of 3/3/2016. Low points were – 677 for S&P, 3,512 for FTSE, 1,810 for EuroStoxx, 7,055 for Nikkei and 11,016 for Hang Seng.
By how many
percentage points?2
+17
1731 31 29
50
0
50
Undervalued
Overvalued
2016
27
2015
11
2014
6
2013
27
7
2012
33
What is your opinion of the current valuation level of the index you are most familiar with?
All
Indexes1
-16
3737
100
50
0
50
Undervalued
Overvalued
Hang Seng
53
12
Nikkei 225
100
0
Euro Stoxx 50
52
12
FTSE 100
18
S&P 500
16
15.8 14.8 13.3 10.8 9.3Forward
looking P/E3
% up from GFC
low point4194 75 66 140 81
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 19
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Payout deep-dive: Highest yield expectations since survey
launch – uptick largest uptick for buyback expectations
2.2%2.3%2.2%2.8%
1.8%2.2%1.9% 2.1%
1.6%
2.3%
2.6%2.4%2.0%
0.0%
1.0%
2.0%
3.0%
%
20162015201220112010 20142013
Actual dividend yield
Expected dividend yield
2.0%
1.2%1.2%1.1%
1.6%
2.6%2.8%2.9%3.6%
2.5%
0.0%
1.0%
2.0%
3.0%
2015
%
201620142013
0.9%0.1%
20122011
1.8%
2010
Based only on S&P 500
Actual buyback yieldExpected buyback yield
Expected and actual dividend yields continue
be in alignment
However, buyback yields expectations are
higher, after consistent over-realization
3.0%
4.0%
0.0%
2011 2014
2.9%
2015
3.9%3.7%
%
3.5%3.4%
2012 20162010 2013
4.2%
2.0%
Cash yield expectations are at their highest point since the start of the survey
Source: BCG Investor Survey 2010-2016
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 20
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
Context for 2016 Investor Survey
Findings from 2016 Investor Survey
• Short-term concerns, reverting to positive mid-term outlook
• Steeply lower TSR expectations due to multiple decline
• Strategic avenues for value creation
Takeaways and implications for companies
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 21
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Investment criteria: Investors looking at management team
credibility and strategy – plus key TSR drivers
13141415
1616
19
27
29
323232
0%
5%
10%
15%
20%
25%
30%
35%
Near-term
EPS growth
EBITDA
margin
Dividend
yield
Potential
improvement
in ROIC level
Leverage
ratios
ROIC levelsFree Cash
Flow / Sales
FCF yield3-5 year
revenue
growth
Underv-
aluation,
potential
for P/E
rebound
Business
strategy /
vision
MGMT
credibility
& track
record
Please rank the three most important metrics or characteristics used to decide whether to invest in/give a buy
recommendation for when evaluating a financially healthy company over the next 12 to 18 months?1
Source: 2016 BCG Investor Survey.Note: Respondents were given 21 answer options; the top 12 responses, which are shown, were selected as number 1, 2, or 3 by more than 10% of respondents in 2016. Answer options that are not shown: change in gross margin percent, gross margin percent, M&A posture, credit rating or debt ratio, buyback approach, environmental & social sustainability, corporate governance and net income margin. ROIC = return on invested capital; EPS = earnings per share. Deviance from historical averages excluded due to added categories.1. Nine answer options selected by less than 10% of respondents are not shown.
Equity story TSR drivers
Less focus on
financial ratios
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 22
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Uses of cash: Investor focus on growth persists – less focus
on additional payouts vis-a-vis deleveraging
Growth focus Payout focus Balance sheet focusRespondents
who chose option
first or second (%) -3% +1%
Percentage
point change
from the
average since
start of survey
(2009)
Sources: BCG Investor Surveys, 2010–2016.1. Responses from "Pay Special Dividend" were excluded (9%) because this response was not offered in previous years.
15
2220
3741
65
16
35
17
26
48
58
0
20
40
60
80
Build cash on
balance sheet
Retirement
of debt
Stock repurchase
program
Increase
dividends
Strategic M&AStepped
up organic
investment
2016
2009-2015 avg
-9%-7% +7% +13%
Given your expectations, what do you think the optimal deployment of capital and free cash flow should be for healthy
companies that generate strong free cash flow beyond dividend and debt payment commitments? Rank your top 3 options.
Potential
reasoning
• Organic growth harder
• More attractive valuations
• Payouts & expectations
already record high
• Further rising interest
rates expected
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 23
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Deep dive: Less than 50% of investors believe share
buybacks are being done efficiently
Among the companies you invest in/follow, do you feel that, on average, management
teams are doing a good job of repurchasing shares when undervalued?
Source: 2016 BCG Investor Survey.
11
16
24
49
0
10
20
30
40
50Respondents
(%)
No, overspendingNo, wrong timing
& overspending
No, wrong timingYes, doing a good
job repurchasing
shares
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 24
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Management priorities: Room to improve long-term value
creation focus through innovation and portfolio shaping
0 1002020 806040
Divestitures 5 51 22
Marketing & Ads 1 12 46 5
Emerging markets 2 13 41 11
R&D 45 40
Short-term focused
(but should not be)4 12 38
Dedicated to TSR 1 9 48
24
M&A 12 46 16
11
Agree Strongly AgreeDisagreeStrongly Disagree
Should
invest
in...
Should
pursue..
Are..
How would you react to the following statements for companies with strong free cash flow and a
healthy balance sheet for the next 12–18 months?
% (Strongly)
Agree
85
52
51
73
62
59
62
Change from
2015
-1
-3
+7
+6
-10
+2
n/a
Sources: BCG Investor Surveys , 2015, 2016. Note: Responses from "Pay Special Dividend" were excluded (9%) – this response was not offered in previous years
Respondents (%)
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 25
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
33 3328 30 28 25 24 21 22
8 710 7
9 76 5 6
27
Financial
planning
3
22
4
Financial
reporting
5
27
Target
Setting
2
20
Forecasting
5
23
Value mgm’t
2
% o
f re
spondents
1
16
Comp &
Incentives
3
21
Risk mgm’t
3
16
Investor
comms
3
19
Strategy dev
and planning
2
14
Capital
Allocation
2
14
Management processes: Investors see most improvement
potential for strategic tools such as capital allocation
Source: 2016 BCG Investor Survey.1. Total for each improvement lever <100% because "Some improvement potential" responses not shown (~50% for most levers). 2. Value management consisting of metrics, target setting, planning, and incentive systems.
Very significant +
Significant
improvement
potential (%)
40 37 35 31 27 2641 38 35 29
To what degree do you believe the companies you invest in/follow can improve
the management processes below?
Strategic Operational
Significant improvement potential No improvement potentialLittle improvement potentialVery significant improvement potential
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 26
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Agenda
Context for 2016 Investor Survey
Findings from 2016 Investor Survey
• Short-term concerns, reverting to positive mid-term outlook
• Steeply lower TSR expectations due to multiple decline
• Strategic avenues for value creation
Takeaways and implications for companies
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 27
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Of the companies you follow or invest in, how well aligned
are their business, investor, and financial strategies?
57
43
0
20
40
60
Respondents (%)
Partly or poorlyHighly
Optimal
TSRInvestor
strategy• Capital structure
• Dividends and
buybacks
Business strategy
Growth, margins,
portfolio, targets, risk
Financial strategy
• Messaging• Transparency• Investor type
The majority of investors see room for improvement in
aligning corporate strategy to realize optimal TSR
Source: 2016 BCG Investor Survey.
Aligning business, investor, and financial strategies
is key to improving valuation and TSR
Optimal TSR can be achieved only by
aligning corporate strategy …
… but almost two-thirds of investors
see potential for improvement
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 28
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
What steps can our clients take to weather the headwinds and
drive strong, sustainable TSR?
Take a balanced and realistic approach to TSR target setting and delivery
• All TSR drivers are important, given high valuation/multiples or margin levels
• Need to understand what TSR current plans can deliver and if that meets expectations
Develop a robust understanding of what drives differences in valuation multiples in a
given sector as a basis for defending (or extending) current valuation
Employ a disciplined approach to capital allocation aligned with "natural" investor type
• Trade off capital allocation options on the basis of their return profile, prioritizing highest-
return reinvestment organic or acquisitive growth opportunities
• Identify target investor type on the basis of growth and cash flow profiles
• Carefully develop a financial policy, focused on dividends as a catalyst or floor for valuation
multiple and opportunistic but prudent share buybacks
Focus core management processes on delivering aligned business and financial targets
• Strategy development and planning to clarify and storm-proof plans
• Investor communications to lay out TSR delivery model and roadmap
• Value management and ownership culture to align incentives across the organization
1
2
3
4
Source: BCG analysis.
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 29
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
It is critical that companies align their business, financial,
and investor strategies
Investor
strategy• Messaging
• Transparency
• Investor type
Financial
strategy• Sources and uses
of cash and capital
• Dividends and
buybacks
Business strategy
Growth, margins,
portfolio, targets, risk
Optimal
TSR
• Investor segmentation
• Target investor mix
• Investor migration plan
• Investor communication
• Investor relations practices
• Multiple valuation
• Competitive advantage
• Portfolio strategy
• M&A and divestiture strategy
• Capital allocation
• Organic growth, margin, and
asset productivity initiatives
• Return cash to
shareholders
• Regular dividends
• Share buybacks
• Special dividend
• Leverage ratio and rating
aspirations
• Net-working-capital
management
Source: BCG analysis.
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 30
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
Authors of the 2016 BCG Investor Survey Report
If you have questions or need further information about this work, please reach out to the
following people within BCG:
Jeffrey KotzenSenior Partner and Managing Director
New Jersey – USTel. +1 973 218 8388Kotzen.Jeffrey@bcg.com
Jeff Kotzen
Tim NolanPartner and Managing Director
New York – USTel. +1 212 446 2620Nolan.Tim@bcg.com
Frank J. PlaschkePartner and Managing Director
Munich – GermanyTel. +49 89 2317 4503 Plaschke.Frank@bcg.com
Tim Nolan
Frank J.
Plaschke
Julien
Ghesquieres Hady Farag
Julien GhesquieresPartner and Managing Director
New York – USTel. +1 646 448 7619Ghesquieres.Julien@bcg.com
Hady FaragPrincipal
New York – USTel. +1 646 455 4606Farag.Hady@bcg.com
2016_BCG_Investor_Survey-Results_Summary 5-20-16 version B.pptx 31
Copyr
ight
© 2
014 b
y T
he B
osto
n C
onsultin
g G
roup,
Inc.
All
rights
reserv
ed.
The services and materials provided by The Boston Consulting Group (BCG) are subject to BCG's Standard Terms
(a copy of which is available upon request) or such other agreement as may have been previously executed by BCG. BCG does not
provide legal, accounting, or tax advice. The Client is responsible for obtaining independent advice concerning these matters. This
advice may affect the guidance given by BCG. Further, BCG has made no undertaking to update these materials after the date
hereof, notwithstanding that such information may become outdated or inaccurate.
The materials contained in this presentation are designed for the sole use by the board of directors or senior management of the
Client and solely for the limited purposes described in the presentation. The materials shall not be copied or given to any person or
entity other than the Client ("Third Party") without the prior written consent of BCG. These materials serve only as the focus for
discussion; they are incomplete without the accompanying oral commentary and may not be relied on as a stand-alone document.
Further, Third Parties may not, and it is unreasonable for any Third Party to, rely on these materials for any purpose whatsoever. To
the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by BCG), BCG shall have no liability
whatsoever to any Third Party, and any Third Party hereby waives any rights and claims it may have at any time against BCG with
regard to the services, this presentation, or other materials, including the accuracy or completeness thereof. Receipt and review of
this document shall be deemed agreement with and consideration for the foregoing.
BCG does not provide fairness opinions or valuations of market transactions, and these materials should not be relied on or construed
as such. Further, the financial evaluations, projected market and financial information, and conclusions contained in these materials
are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed by BCG. BCG has used public
and/or confidential data and assumptions provided to BCG by the Client. BCG has not independently verified the data and
assumptions used in these analyses. Changes in the underlying data or operating assumptions will clearly impact the analyses and
conclusions.
Disclaimer
Thank you
bcg.com | bcgperspectives.com
top related