(BFM Bourse) – What do the five best performances of the Paris Stock Exchange over the last 20 years have in common? These companies are supported by a leading investor who is strongly involved in their governance, reports Amiral Gestion.
Sartorius Stedim, Wavestone, Eurofins Scientific, Hermès, and Esker… These companies have particularly distinguished themselves on the stock market over the last 20 years. The saddler saw its price appreciate by almost 3,500% over the period, when Esker, the only tenant of Euronext Growth on this list, saw its price increase by 22 in the interval. And even by 52 if we stop at its historic high recorded at the end of 2021 at more than 360 euros.
So what is the key to this success on the stock market? Amiral Gestion gives us some answers. These companies almost all have a reference investor in their capital, strongly involved in the governance of the company (in this case a family, a founder, a buyer, or a group of managers).
This is not a French exception, argues the management company. “The same exercise generates equivalent results in other European countries, whether in Germany, Italy or Spain, to name only the main countries of the euro zone,” adds Amiral Gestion.
To illustrate this state of affairs, the management company cites a study by Credit Suisse. She emphasizes that since 2006, her sample of 1,000 family companies has generated an average annual outperformance of 3 points compared to the others. This study also highlights an even more considerable gap for small companies (5.4 points of outperformance) than for large ones (2.3 points).
“These statistics are carried out across the entire world, and the findings are relatively similar across all geographic areas. In addition, these companies overall have a lower level of debt than the large ones, which corroborates other studies emphasizing that they generate superior long-term performance by reducing risk-taking,” adds the management company.
Resisting short-termism
However, these companies controlled by a majority shareholder are sometimes the subject of a certain mistrust on the part of investors, also notes Amiral Gestion. According to the management company, “investors sometimes criticize them for not listening to the pressing demands of the financial markets.” However, these investors are only “transient”, and their requests prove incompatible with certain strategic projects, which are part of the long term.
But this is perhaps where one of their main strengths lies, points out Amiral Gestion, namely that of resisting the demands of the Stock Exchange, “which has its own logic, its own time horizon. Above all, the company hires his reputation and even that of family members, which leaves little room for rash strategic decisions.”
“If controlled companies – family or not – have statistically better long-term performance, it is perhaps also because they avoid certain costly errors that uncontrolled companies make more often,” continues the management company.
Fewer unforced errors
To illustrate the prudence of these companies, Amiral Gestion borrows a term familiar from the world of the yellow ball: “As in tennis, they (these companies) would make fewer unforced errors than the others, which would naturally give them an advantage in terms of performance”.
“When LVMH buys Tiffany, it is not because Bernard Arnault thinks that it will please the financial markets, but because an industrial vision allows us to envisage real long-term value creation,” explains the management company, which on the other hand is much less tender on the “sad Atos case”.
It even appears as a caricature of the problems of “lack of alignment between managers and shareholders”. “Without a reference shareholder, this company was managed by a succession of general managers in a logic of headlong flight, excessively optimizing (short-term) income statement and cash generation, multiplying external growth operations to attract the markets, and distributing when everything seemed to be going well huge sums in the form of free shares to its managers at the time, and commissions to armies of investment bankers”, laments Amiral Gestion.
In a utopian scenario depicted by the management company, Atos “would have been managed differently if its historical managers had had the prospect of remaining significantly invested in the capital for many years and had not been remunerated in a form which allowed them to benefit of the stock’s rise in the short term without suffering from its decline in the long term”. In this context, “the acquisitions would have been fewer in number, better integrated, carried out at more reasonable prices; conversely, the good management of the company’s operations would have been much higher on the list of priorities”.
An alignment of interests
On the other side of the spectrum, a company’s minority shareholders may fear being cheated and seeing their interests stifled by the management team. A problem which is raised by “agency problems” (the agent being the one who acts on behalf of others).
However, in the case of entrepreneurial leaders, this alignment is guaranteed, recalls Amiral Gestion since the remuneration of shareholders is the remuneration of management. The management company cites the example of Jérôme François, CEO of TFF Group, world leader in barrel aging for wine, who therefore does not have a variable salary. This manager believes that his dividends and the company’s value creation play this role.
“This is not new, the alignment of interests is absolutely critical in the economic performance of companies and a good understanding of this alignment is an essential step in our analyses. The reference shareholder base seems to be by far its best guarantor. When this is not the case, the remuneration system for management but also for employees must be extremely well structured and must be a priority for the boards of directors”, continues Amiral Gestion.
Sabrina Sadgui – ©2024 BFM Bourse