Wednesday, 27 May 2015

The top 100 brands in the world (part 1)

Brands are intrinsically fascinating and in a competitive and changing world a good source of business strength, protection and profile.  So once again - the same as last year (link here) - I find myself looking at the BrandZ information in today's Financial Times with great interest.

I take the view that brands and brand value can provide great insights for equity analysis and structural shifts.  Take this on regional shifts from the report writers themselves as an example: 

'Chinese brands, of which there are 14 in the Top 100 -- up from just one in 2006 -- are pushing out European brands. Those brands dropped 9.3% in the last year to 24 brands from 35 in 2006. The study said the value of U.S brands grew by 137% in the last 10 years'. 

So what were the results this year and what can we discern.  For a start there was far too much information for one write-up and I will sub-divide the list into a number of parts over the next few days.

Today then the top 10 brands...and what an interesting list they are.  For starters they are all American in heritage.  Second nine of them appeared in last year's top ten which says something about persistence (congratulations Verizon for breaking into the top ten...from eleventh!)

So what can we do with this data...well we can compare it to EV (market cap plus net debt) and see what proportion of this EV can be attributed to the brand value per se and what proportion is more...operational.  The broad rule of thumb is that a high brand value of a company's EV may highlight value...especially if that brand value is going up (interestingly only true of eight of the top ten). 

So what are the results? (brand value shown as a % of total company EV)

Apple 33.5%
Google 56.0%
Microsoft 36.1%
IBM 47.5%
Visa 56.0%
AT&T 33.1%
Verizon 27.6%
Coca-Cola 41.7%
McDonald's 76.2%
Marlboro (aka Altria) 72.2%.  If you also add the PMI market cap this reduces to c. 30%

Well that was interesting.  Here's the top four with usefully over half their market cap covered by their BrandZ brand value:

McDonald's 76.2%
Marlboro (aka Altria) 72.2%.  If you also add the PMI market cap this reduces to c. 30%
Google 56.0%
Visa 56.0%

So are these stocks cheap then?

Well funnily enough I have written about all four reasonably recently.  On McDonald's just a few weeks ago I opined that I would rather eat their burgers at the prevailing share price then buy the share (link here). That's the trouble with a brand value that is high but falling.  

Altria does not have that problem however and this stock has been a hugely successful share for me over the last year or so.  I last wrote about the stock here back in January when I sold half my position.  With the share down a little under 10% since then, this feels justified but the above analysis tells me - just as I concluded back in January - that a sub US$50 print is an opportunity to buy Altria.

As for Philip Morris International I do own the stock and have written positively about it here.  

My view would be for a brand to cover c. 30% of BOTH companies (and when both have other brands too) is quite remarkable.   

Now Google is a stock I own and think is good value at prevailing (see this commentary from April here). Any chance in that sub US$525 share price range is a buying opportunity in my view.  This brand analysis just reinforced that. 

And Visa.  It has been a while since I looked at the stock (around 11 months ago here) and my pre-split share price buy target of sub US$200 ultimately proved too conservative.  That's the way it goes sometimes...but it is time to reassess: the BrandZ analysis has highlighted that for me.  Look out for the updated note and view shortly.   

I have got a feeling many more insights from the BrandZ analysis will be upcoming as I delve further into the list.  

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