Value Creation Awards 2013-2023

The chart below shows how $1 evolved in 1964 if it was invested in US government bonds (US Treasuries), in the US broad equity index (S&P 500) or in a Berkshire Hathaway stock. Investing in stocks seems to have been more than a good long-term protection against inflation. US 10-year interest rates, as well as inflation, have been positive in all these years; only in 2008 did inflation flirt with the 0% mark (0.1%).

This track record has resulted in Berkshire Hathaway being the eighth largest publicly traded company in the world today with a market capitalization of 825 billion euros. The 10 largest publicly traded companies in the world are: Microsoft (2,850 bln euros), 2. Apple (2,650 bln euros), 3. Nvidia (2,100 bln euros), 4. Alphabet (1,950 bln euros), 5. Amazon (1,800 bln euros), 6. Saudi Arabian Oil Company (1,790 bln euros), 7. Meta Platforms (1,100 bln euros), 8. Berkshire Hathaway (825 bn euros), 9. Eli Lilly (668 bn euros) and at 10. TSMC (608 bln euros). Novo Nordisk is the most valuable European company in place 12. (data on 14/5/2024 Bloomberg).

The largest Belgian listed company, beer brewer AB Inbev ranks 123 among the world's largest listed companies with a market capitalization of 121 billion euros. (data on 14/5/2024 Bloomberg).

Methodology

The evolution of book value is a good indicator of the evolution of intrinsic or "real" value. In our study, we assess fundamental value creation using the following formula: we take the book value per share at the end of 2023, to which we add all the net dividends received in cash by a private shareholder over the past 10 years; finally, we compare this sum with the book value per share at the end of 2013. From this quotient, we calculate the compound interest rate to obtain the value creation per year.

The book value per share is obtained by dividing consolidated equity (group share) by the number of shares at the end of the financial year (excluding treasury shares). Furthermore, we make adjustments for capital increases at stock market prices above book value (of the fiscal year preceding the capital increase).

Such analysis of 10-year fundamental economic performance, by the way, is one of the pillars on which asset manager Value Square assesses the quality and risks of all the publicly traded companies it monitors.

This fundamental analysis approach is independent of the evolution of stock prices, over which a manager has no control. The track record of managers is therefore better evaluated by the evolution of fundamental figures. Stock prices are strongly influenced by emotions in the short term. In the long term, of course, stock prices must follow or preferably exceed the evolution of the underlying fundamental value, as is the case at Berkshire Hathaway.

Perhaps still emphasize that intrinsic value and book value are two different things. The intrinsic value of a stock or a company is equal to the discounted future free cash flows. But since intrinsic value is calculated differently by everyone, Buffett stated long ago that the evolution of the (easily calculated) book value is a good indication of the evolution of the intrinsic value.

Each year, Value Square awards prizes to the three highest scoring companies in this study and management is rewarded with a gold, silver or bronze "Value Creation Award." The awards will be presented at the "Value Creation Awards" event on Tuesday, May 21, 2024 at the Handelsbeurs on the Kouter in Ghent.

87 Belgian companies screened/ 83 analyzed

We screened a total of 87 Belgian listed companies. Of three companies we could not measure the fundamental value creation due to a negative start and/or end value (Nyrstar, Oxurion, MDX Health). Crescent the former Option International has not yet published its annual report at the end of April 2024. We thus analyzed 83 Belgian listed companies.

Several companies disappeared from the stock market in 2023, including Telenet (after a squeeze-out bid by main shareholder Liberty Global), Beluga, Picanol, Belreca, Rosier and Befimmo. MDX Health delisted in Brussels, but is still listed on Nasdaq.

A number of newcomers entered the stock market in 2013, including Bpost, Viohalco (holding of metal processing companies mainly Greek and with Greek shareholders) and the inner-city retail property specialist QRF, which is a regulated real estate company or GVV.

VGP wins "GOLDEN ValueCreation Award"

The winner of the Value Creation Awards remains unchanged for the third year in a row - VGP. The family-owned company created 25.53% value per year from 2013 to 2023. VGP is a pan-European owner, manager and developer in logistics and semi-industrial real estate. Meanwhile, VGP has operations in 17 European countries, both directly and through 50:50 joint ventures. In addition to the existing JV with Allianz, new JVs were added last year with Pimco Prime Real Estate and with Deka Immobilien.

The major focus is on prime locations near highly concentrated residential and/or manufacturing centers with strong accessibility to transportation infrastructure. VGP is surfing the long-term trend of e-commerce where there is a great need for quality logistics real estate. After a long period of declining and low interest rates, the situation completely reversed since 2022. Instead of very low interest rates, we are now at more normalized interest rates. This is what the real estate market in the broad sense needs to readjust to. The Van Geet family managed to come out of this crisis without too much damage and did better than many other developers.

The stock lost sharply in 2022 but was able to make up some of that loss in 2023. Over the past 10 years, investors in VGP cannot complain. Indeed, its stock market return (including net dividends) was 618.7%, implying an annual stock market return of 21.80%.

It is now the fifth year in a row that Melexis achieved second place. The West Flanders technology company has created a whopping 22.43% annual value over the past decade. Melexis designs, develops, tests and sells semiconductors for many markets, but the automotive is by far the most important. With increasing electrification and comfort and safety applications, there is a rising demand for automotive analog chips.

There are an average of 18 Melexis chips per car produced. There are substantially more Melexis chips in electric cars, which means that in the long run the company will continue to reap the benefits of electrification and premiumization of the fleet. The all-electric BMW iX, for example, has about 70 Melexis semiconductors. In addition to strong value creation, Melexis has enjoyed a solid stock market trajectory over the past decade. The company realized a stock market return of 363.32% from 2013 to 2023 (including dividends). After the boom during corona and the shortages of semiconductors in the period thereafter, the entire sector is now suffering some inventory drawdowns and the adoption of electric cars in Europe does not seem to be progressing as fast as before, making investors a bit hesitant. Melexis was one of the larger decliners in the stock market last year, so now its annual stock market return of 16.57% lags somewhat behind its fundamental performance. We would like to highlight Melexis this year because of their dominant position at the top of the Value Creation Awards rankings. For the past 9 years, Melexis has been either in 1st place or 2nd place. Congratulations to all 2,042 Melexians !

The most notable riser in this year's rankings is Floridienne. In last year's rankings, the company was in place 52, now in 3! This Belgian industrial group has leading positions in a number of niche markets in the Chemicals, Gourmet Food and Life Sciences sectors. The reason for the sharp rise has to do with the Biobest subsidiary, which specializes in the biological control of crops. They develop and produce all kinds of products: insects, mites or biopesticides against all kinds of pests or diseases (white fly, aphids and viruses that can occur in various crops). Biobest's first product was the famous bumblebees used for pollination in greenhouses. The yield of growers immediately increased by 20% when using these bumblebees. Then came the demand to replace chemical agents (logical because otherwise the bumblebees would die) with biological ones, so that today pollination by bees accounts for only 10% of the turnover and biological crop protection accounts for 90%.

To finance the acquisition of more than half a billion euros for Brazilian sector peer Biotrop, Biobest made a capital increase. Well-known private equity players such as Sofina, M&G and Tikehau stepped in. In the process, Biobest was valued at more than 1.1 billion euros. That revaluation boosted Flordienne's equity, which rose more than 150% by 2023 as a result. At 10 years, the fundamental value creation comes to 396.8% or 17.39%, good for third place and a "Bronze Value Creation Award." The stock market return was even better at 25.50% per year.

Results of the study

Berkshire Hathaway achieved total value creation of 259.12% over the period 2013-2023. This amounts to 13.64% per year (in euros). Warren Buffett and Value Square believe that stock prices follow the long-term fundamental value evolution. Over the past ten years, the stock price at Berkshire Hathaway rose at an average annual rate of 14.29% (in euros). Thus, at Berkshire, the stock price nicely follows fundamentals.

This year, ten Belgian companies created more value than Berkshire Hathaway over the past decade: VGP, Melexis, Floridienne, Lotus, WDP, EVS, Campine, Bpost, Montea and Jensen. They achieved an average fundamental value creation of 16.79% per year and their stock market returns averaged 14.44% per year over the past 10 years.

The fundamental value creation of the 83 companies analyzed over the period 2013-2023 averaged 6.59% per year. The average stock market performance is back close to fundamental value creation at 6.11%.

Top 20

New entrants in the top 20 are Bpost, Tessenderlo, Moury Construct, and Kinepolis.

The top 20 Belgian listed companies that created the most value achieved a fundamental increase in value of 14.18% per year. Of this, an average of 33% or one-third was realized through dividends paid. The total 10-year value creation of these 20 listed companies is 299% over the period 2013-2023. The average stock market return of the top 20 lags behind fundamentals at 11.34% per year.  

A notable name in the top 10 is our Belgian postal company Bpost, which is included in our study for the first time since it went public in 2013. The Belgian state is still the main shareholder with 50.1% of the shares. Bpost, thanks in part to its dominant market position, has posted a nice fundamental value creation of 14.24% over the past few years and since its IPO. However, Bpost has come under negative scrutiny in recent months, with the loss of the newspaper and magazine distribution contract and possible fraud, with an internal audit revealing that some former top executives may have been in cahoots with competitor PPP and the media companies. This led to overbilling, where Bpost will have to repay unduly paid subsidies. The value creation was therefore not reflected in profits for shareholders, as the stock market return over the past 10 years was even negative (-3.03% per year).

Other stocks whose stock prices lag behind their fundamental value creation are: EVS, Tessenderlo, Smartphoto, Econocom, Colruyt and Exmar.

The reason why EVS is lagging has to do with the high expectations of 10 years ago that the company could not meet. Its share price then stood above 50 euros. EVS' sales did not grow again for 10 years, but the Liège-based company seems to have regained the growth path in the last three years.

Tessenderlo's poor stock market performance then has more to do with top executive Luc Tack's poorer communication, about which much ink has already flowed. Moreover, in the short term, the cyclicality of the various activities within the conglomerate seems to fall at the same time rather than provide a balanced spread.

At Econocom, top executive Jean-Louis Bouchard seems to be one of the few who believes in his IT company (of which he is 62.5% shareholder, by the way), by systematically buying back his own shares. Since 2017, Econocom has already bought up 26.7% of its own shares. Again, communication is not the strength of management.  

The stock prices of Floridienne and Lotus Bakeries then seem rather ahead of fundamental value creation.

Family Business

We label a business as a "family business" if an individual or family owns 20% of the share capital and at least 1 family member is on the management or board of directors. Of the 83 "calculated" firms, 63 are family firms which is 76% of the number of firms studied. The family firms in our study achieved an average fundamental value creation of 6.66% per year over the past 10 years; non-family firms achieved a fundamental return of 6.37%. However, if we include the three non-family companies Nyrstar, Oxurion and MDX Health (which, by the way, have seen all their equity melt away and also did not pay dividends), the fundamental value creation of all non-family companies drops to -7.5% per year.

Over the period 2013-2023, listed family companies achieved an average annual stock market return of 7.09% versus 3.04% for their non-family peers. Again, taking into account the 3 non-family companies that destroyed much of their stock market value (see above), the average annual stock market return for non-family companies drops to -1.62%.

Rather, investors in publicly traded family-owned companies should be reassured that their interests are aligned with those of reference shareholders. According to several studies, family-managed companies outperform non-family-managed companies, thanks in part to their long-term focus and more conservative attitude toward debt. Our study reaffirms this statement.

Historical returns are no guarantee of future returns!

Dividend Democrats

An annual dividend is very important to many shareholders. A stable to increasing dividend knows how to please many family, as well as small and large minority shareholders. For the small shareholder, the net dividend yield is most important. Normally, the term dividend democrats refers to companies that have been able to increase their dividends for 25 years or at least keep them stable. Here we look at the past 10 years.  

Eleven Belgian companies were able to maintain or increase their net dividend every year for the past 10 years, namely: Aliaxis, Barco, Brederode, Care Property Invest, Econocom, Etex, Lotus Bakeries, Sofina, Texaf, UCB and WDP. If we abstract from an exceptional dividend at D'Ieteren in 2017 (paid out in 2018), the investment company of the eponymous family also belongs in the above list.

If we disregard the change in taxation (increase in withholding tax in two steps from 25% to 27% and to 30%), whereby the gross dividend is stable or increasing, then Ackermans & van Haaren, Elia, GIMV, Home Invest Belgium, Montea, Retail Estates, What's Cooking? and Financière de Tubize also appear as stable dividend payers. This year, Atenor falls out of the list of stable dividend payers.

So last year there were 20 companies that increased their (gross) dividends 10 years in a row or at least kept them stable. Investing in companies with consistent dividend policies pays off. The average stock market return of these 20 companies over the past 10 years was 9.18%; this is almost exactly the same as their fundamental value creation of 9.29%.

Investment companies

Professor Roland Van der Elst advises investors to invest in holding companies because of their risk diversification and low costs. Holdings can be considered listed stock portfolios, often managed by a family shareholder. These companies typically invest cautiously and with a long-term focus, which makes them a stable option for many (novice) investors.

Brederode is the only holding or investment company in the top 20, only narrowly beating Berkshire Hathaway. That is why he is rightly called the Belgian Warren Buffett. Van der Mersch has also been slowing down for some time. He already resigned his positions as managing director in 2015 and as chairman in 2014. Recently, he also resigned his mandate as vice chairman no. Buffett, at 93 years old, is still active as CEO, but his successor Greg Abel has long been prepared. In addition to Brederode, the performance of family holdings D'Ieteren, Ackermans & van Haaren and Sofina may be seen. GBL and Quest for Growth dangle at the back of the list of Belgian investment companies. Perhaps we should also add Tessenderlo to this list.

The full study

The complete list of the Value Creation study can be obtained by sending an e-mail to info@value-square.be with "List Value Creation Awards 2013-2023" in the subject line.

This study was conducted under the responsibility of Patrick Millecam, Partner and Senior Portfolio Manager at Value Square. He received the support of Andreas Gistelinck, intern and Finance & Risk Management student - Master Commercial Sciences, University of Ghent.