HOW TO INVEST IN FUTURE VALUE (part one)
HOW TO INVEST IN FUTURE VALUE (part one)
Friday, 27 April 2007 01:29
HOW TO INVEST IN FUTURE VALUE Part One
by Jeremy Sampson, Chief Executive, Interbrand Sampson Africa
Global best practice tells me that of the Top 20 Brands by Value, as calculated by Interbrand, using data provided by JP Morgan Chase & Co, Citigroup, Morgan Stanley, and published in Business Week annually for the last six years, net assets on average only make up 32% of market capitalization. You don’t have to be much of a mathematician to realize this is only around one third of total value. And if you were to ask what makes up the other two thirds, the answer is roughly one-third intellectual capital and one-third brand value. Intellectual capital relates of course to items such as copyrights, patents, management expertise and know how etc. All intangibles.
Brand value is therefore highly significant. Yet many companies continue to ignore the fact that today their brands, which may be products or services, or indeed the corporate brand itself, are probably their major assets. The growing concern with governance, is also working to move the subject of the corporate brand up the management agenda.
There are still some who would argue that the value of a company is based on its market capitalization. As we know that is based on multiplying the number of shares in issue by the ruling price on the relevant stock exchange. As a consequence of this we know that Anglo American plc is currently South Africa’s largest company by market capitalization at R511 368 million, based on a current share price of R337. As the share price has a min/max of R204 / R352 over the last 12 months, it becomes apparent that the range is very considerable.
Up to this point I have refrained from using the term ‘marketing’ as sadly some of you reading this paper on seeing the word may have been tempted to move onto the next article! However, I would like to quote from this year's Marketing Society (UK) Awards for Excellence 2006, and the document ‘Measuring Up’, prepared by Accenture. It is a ‘must read’ for all those involved in growing their business: “In many companies, marketing still struggles to build real boardroom credibility – largely because marketing lacks accountability and is often unable to justify marketing spend when budgets come under pressure. Conversely, in high performers, marketing and brand are part of the organizations fabric. Marketing is championed from the top because it is central to building strong brands and driving business value.” When your brands are your major assets, it is essential to treat them accordingly. It is also essential to have people at both Board of Directors and Exco levels who fully understand marketing and brands.
If you were to return to the case of Anglo American, could you make any form of argument that it has a marketing culture? I don’t think so. On that basis there is little or no brand value built into its market capitalization. After all, this is the group that gave away the De Beers name (brand?) in 2001, at a cost of zero cents. I would argue that any brand (company) that is synonymous with one word i.e. diamonds are to De Beers what chocolate is to Cadbury’s, has already created a huge potential competitive edge over the competition, something very solid to build on in marketing terms. To add insult to injury, first De Beers sold – or perhaps gave away – the rights to the name in retail terms to the French in the form of LVMH. And if that wasn’t enough the slogan ‘A diamond is forever’ one of the best known in the entire world has now been detached from De Beers and added as some sort of appendage to the DTC – whatever that may be. At the time I even had some eminent investment bankers enquiring what I thought Anglo and De Beers were doing. If Anglo was split up and sold off, it would probably raise much more than it is currently worth on the stock market. To someone such as Xstrata, this would be a mouth-watering proposition, and don’t forget Brian Gilbertson of Sual, who the Financial Times refers to as the best known figure in the global mining industry. A proud South African.
(Part two of this article is available on this website under the title: How to Invest in Future Value Part Two)
