Value Creation Awards 2013-2023

The graph below shows how 1 USD evolved in 1964 when it was invested in U.S. government bonds (US Treasuries), in the U.S. Broad Stock Index (S&P 500), or in a Berkshire Hathaway stock. Investing in stocks seems to have been more than just a good way to protect against inflation in the long term. The 10-year US interest rate, as well as inflation, have been positive over all these years; only in 2008 did inflation flirt with the 0% limit (0.1%).

This track record has meant that Berkshire Hathaway is today the eighth largest listed company in the world with a market value of 825 billion euros. The world's 10 largest listed companies are: 1. Microsoft (2,850 billion euro), 2. Apple (2,650 billion euro), 3. Nvidia (2,100 billion euro), 4. Alphabet (1,950 billion euro), 5. Amazon (1800 billion euro), 6. Saudi Arabian Oil Company (1,790 billion euro), 7. Meta Platforms (1,100 billion euro), 8. Berkshire Hathaway (825 billion euro), 9. Eli Lilly (668 billion euro) and 10. TSMC (608 billion euro). Novo Nordisk is the most valuable European company in 12th place (data as at 14/5/2024 Bloomberg).

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

Methodology

The evolution of book value is a good measure 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, adding all 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 value creation per year.

The book value per share is obtained by dividing the consolidated equity (group share) by the number of shares at the end of the financial year (excluding the number of treasury shares). We also make adjustments for capital increases to stock market prices above book value (for the financial year prior to the capital increase).

By the way, such an analysis of the fundamental economic performance over 10 years is one of the pillars on which asset manager Value Square assesses the quality and risks of all listed companies it succeeds.

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

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

Every year, Value Square awards awards to the three highest-scoring companies in this study, and management is rewarded with a gold, silver or bronze “Value Creation Award”. The prizes 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. We were unable to measure the fundamental value creation of three companies through a negative start and/or end value (Nyrstar, Oxurion, MDX Health). Crescent, formerly Option International, has not yet published its annual report at the end of April 2024. So we analysed 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 removed its listing in Brussels, but is still listed on Nasdaq.

In 2013, a number of newcomers came on the stock exchange, including Bpost, Viohalco (holding company of metalworking mainly Greek companies and with Greek shareholders) and 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 business created 25.53% of value per year between 2013-2023. 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 Deka Immobilien.

The main focus is on top locations near highly concentrated residential and/or production centers with strong accessibility to transport infrastructure. VGP is surfing along with the long-term trend of e-commerce, where there is a great need for quality logistics real estate. After a long period of falling and low interest rates, the situation has completely reversed since 2022. Instead of very low interest rates, we are now at more normalized interest rates. The real estate market in a broad sense must adapt back to this. The Van Geet family managed to get out of this crisis unscathed and did better than many other developers.

The stock lost sharply in 2022 but was able to recover part of that loss in 2023. Over the past 10 years, investors in VGP can't complain. Indeed, the stock market return (including net dividends) was 618.7%, which implies an annual stock market return of 21.80%.

It is now the fifth year in a row that Melexis won second place. The West-Flemish technology company has created no less than 22.43% annual value over the past ten years. Melexis designs, develops, tests and sells semiconductors for many markets, but the automotive is by far the most important. Due to increasing electrification and increasing comfort and safety applications, there is an increasing demand for analog chips in the automotive sector.

There are an average of 18 Melexis chips per car that is produced. There are significantly more Melexis chips in electric cars, so the company will continue to reap the benefits of electrification and premiumization of the vehicle fleet in the long term. The all-electric BMW iX, for example, has around 70 Melexis semiconductors. In addition to creating strong value, Melexis has completed a tough stock market course over the past ten years. The company achieved a market return of 363.32% in the period 2013-2023 (including dividends). After the boom during corona and the shortage of semiconductors in the following period, the entire sector is now suffering from a reduction in inventory and the adoption of electric cars in Europe seems to be evolving less rapidly than before, which makes investors hesitate. Melexis was one of the larger declines on the stock market last year, so that its annual stock return of 16.57% is now somewhat behind fundamental performance. We want to put Melexis in the spotlight 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. Congratulations to all 2,042 Melexians!

The most remarkable riser in this year's ranking is Floridienne. In last year's ranking, the company was still ranked 52, now 3rd! 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 significant increase 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 (whiteflies, aphids and viruses that can occur in various crops). Biobest's first product was the famous bumblebees that were used to pollinate greenhouses. Growers' returns immediately increased by 20% when using these animals. Then came the question to replace chemical agents (logical, otherwise the bumblebees would die) with organic ones, so that pollination by bees accounts for only 10% of the turnover today and biological crop protection accounts for 90% of the yields.

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

Results of the study

Berkshire Hathaway achieved a total value creation of 259.12% in the period 2013-2023, amounting to 13.64% per year (in euro). Warren Buffett and Value Square are convinced that stock prices follow the fundamental value evolution in the long term. Over the past ten years, Berkshire Hathaway's share price has risen by an average of 14.29% per year (in euro). At Berkshire, the stock price therefore follows the fundamentals nicely.

This year, there are ten Belgian companies that have 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 return has averaged 14.44% per year over the past 10 years.

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

Top 20

New entrants to the top 20 include 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. On average, 33% or one third of this was realised by the dividend paid. The total 10-year value creation of these 20 listed companies amounts to 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 because it came to the Brussels stock exchange in 2013. The Belgian state is still the main shareholder with 50.1% of the shares. Partly thanks to its dominant market position, Bpost has created a nice fundamental value creation of 14.24% over the past years and since its IPO. However, Bpost has been in a negative light in recent months, with the loss of the contract for distributing newspapers and magazines 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 unfairly paid subsidies. The value creation was therefore not reflected in profits for shareholders, as the stock market return over the past 10 years has actually been negative (-3.03% per annum).

Other stocks whose stock prices lag behind their fundamental value creation include: 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 was unable to meet. At that time, the stock price was above 50 euro. EVS' turnover stopped growing in 10 years, but the Liège company seems to have found its growth path again in the last three years.

Tessenderlo's poor stock market performance, on the other hand, is more due to CEO Luc Tack's poor communication, about which a lot of ink has already been shed. Moreover, in the short term, the cyclicity of the various activities within the conglomerate seems to fall at the same time rather than ensure a balanced distribution.

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

The stock prices of Floridienne and Lotus Bakeries, on the other hand, seem to be somewhat ahead of fundamental value creation.

Family businesses

We label a company as a “family business” if an individual or family holds 20% of the share capital and has at least one family member on management or board of directors. Of the 83 “calculated” companies, 63 are family businesses, which is 76% of the number of companies studied. The family businesses in our study achieved an average fundamental value creation of 6.66% per year over the past 10 years; non-family businesses 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 paid no dividends), the fundamental value creation of all non-family companies falls to -7.5% per year.

Over the period 2013-2023, listed family businesses achieved an average annual stock return of 7.09% compared to 3.04% for their non-family colleagues. If we also take into account the 3 non-family companies that destroyed much of their market value (see above), the average annual stock return for non-family businesses falls to -1.62%.

Rather, investors in listed family companies should be reassured that their interests are similar to those of the reference shareholders. According to various studies, family-run companies perform better than non-family-run companies, partly due to their long-term focus and their more conservative attitude towards debt. Our study confirms this statement once again.

Historical returns are no guarantee of future returns!

Dividend aristocrats

An annual dividend is very important for many shareholders. A stable to rising dividend is appreciated by many family, but also small and large minority shareholders. For small shareholders, the net dividend yield is the most important. Normally, the term dividend aristocrats refer to companies that were able to increase or at least keep their dividends stable over 25 years. Here we take a look at the past 10 years.

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

If we keep the change in taxation in abstraction (raising the withholding tax in two steps from 25% to 27% and to 30%), where the gross dividend is stable or rising, then Ackermans & van Haaren, Elia, GIMV, Home Invest Belgium, Montea, Retail Estates, What's Cooking will also come? and added Financière de Tubize as stable dividend payers. This year, Atenor falls off 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 a consistent dividend policy pays off. The average return on the stock market for these 20 companies has been 9.18% over the past 10 years; 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 holdings because of their risk diversification and low costs. Holdings can be considered as listed stock portfolios, often managed by a family shareholder. These companies usually invest cautiously and focus on the long term, making them a stable option for many (beginning) investors.

Brederode is the only holding or investment company in the top 20 and should barely let Berkshire Hathaway come first. That is why he is also rightly called the Belgian Warren Buffett. Van der Mersch has also been taking it easy for some time. He already resigned as managing director in 2015 and chairman in 2014, and recently resigned as vice-chairman. Buffett is still active as CEO at 93 years old, but his successor Greg Abel has long been prepared. In addition to Brederode, the performance of the family holdings D'Ieteren, Ackermans & van Haaren and Sofina can be seen. GBL and Quest for Growth are at the bottom of the list of Belgian investment companies. Perhaps we should also add Tessenderlo to this list.

The full study

The full list of the Value Creation study can be obtained by sending an email to info@value-square.be with the subject “Value Creation Awards 2013-2023 list”.

This study was conducted under the responsibility of Patrick Millecam, Partner and Senior Portfolio Manager at Value Square. In doing so, he received the support of Andreas Gistelinck, intern and student Finance & Risk Management — Master of Business Sciences, Ghent University.