Pandemic erodes equity at one in three companies

The corona pandemic has reduced equity for one in three Belgian companies. This is according to Value Square's annual study of companies' value creation.

Of the 87 Belgian companies scrutinized by the asset manager Value Square, 28 saw their equity fall in 2020. The year before, that was one in four. On average, equity at the 28 dropped 11.7 percent.

In Solvay's 323-page annual report, the words "corona" and "covid" appear 150 times.
- Patrick Millecam

The pandemic caused the greatest havoc at cinema operator Kinepolis. Due to the closed theaters, there were 70 percent fewer visitors. After a net loss of 69 million euros, Kinepolis' book value plummeted 40 percent. 'That's huge,' says chief strategist Patrick Millecam. 'Yet management has managed the crisis well, especially compared to the world's biggest two cinema operators. The number one, AMC, saw its equity fall from $1.21 to -2.88 billion and refueled $355 million. At the number two, Cineworld, equity shriveled 92 percent.'

Solvay and its parent holding company Solvac were also hit. The chemical group recorded more than EUR 1.5 billion in restructuring costs and impairments, especially in the composite materials business as sales in the aerospace and automotive sectors took a hit. 'In the 323-page annual report, the words 'corona' and 'covid' appear 150 times,' Millecam explained. 'CEO Ilham Kadri even said that at one point she was no longer CEO, but CMO - Chief Mask Officer - because the safety of her employees was the priority.'

Brewers AB InBev and Co.Br.Ha. struggled with the closure of the on-trade and the loss of festivals and popular celebrations. Fountain could put less coffee or other hot drinks through its vending machines in the offices. It had to make a capital increase. Retail tenants also took hits.

Despite the impact of the pandemic, all of the Belgian companies surveyed were still able to increase their equity on the stock market by an average of 8.5 percent. Based on that equity and the dividends paid out, Value Square has been calculating the evolution of the "fundamental value" of companies for the past 14 years. The asset manager argues that stock prices will eventually have to follow that evolution.

'Belgians realized an average fundamental value increase of 5.3 percent per year over the past decade,' Millecam said. 'The average stock price rose slightly more at 6.6 percent.'

Each year, Millecam also draws comparisons to the value investor par excellence: Warren Buffett. His holding Berkshire Hathaway jacked up fundamental value by an average of 12.7 percent over the past decade. Only seven Belgians are doing better: Picanol, Melexis, VGP, Lotus Bakeries, EVS, WDP and Telenet. Like last year, the first three received awards for their podium finishes at the Value Creation Awards this week. The top three remained unchanged.

Picanol owes its gold medal to Luc Tack's capital increase at the loom maker in 2009, which put Tack in control. After four years of investing heavily and not paying dividends, cash flows became so large that he was able to look for diversification. Picanol acquired the 27.5 percent stake in the Tessenderlo chemical group from the French state in 2013 and systematically increased that stake. At Tessenderlo, Tack was also able to improve the situation dramatically.

Picanol's fundamental value rose 736 percent, or 23.7 percent per year, since 2010. The stock delivered a return of 19 percent a year. 'I'd rather look through the windshield than in the rearview mirror,' Tack said at the digital award ceremony. 'Long-term growth looks good. The rise of the middle class in emerging countries will only increase the demand for textiles. We want to provide the best solutions for that with our weaving machines.'

DISCLAIMER

• Source: The Time
• Author: Serge Mampaey
• Link: https://www.tijd.be/ondernemen/algemeen/pandemie-holt-bij-een-op-de-drie-bedrijven-eigen-vermogen-uit/10306165.html