10 September 2018
Thoughts on Themes (ToT) #7Family-owned companies are a theme
Our latest report on family-owned companies (
The CS Family 1000 in 2018
) shows that
family-owned companies outperformed broader equity markets in every region, in every
sector, and both smaller and larger companies since 2006. We base our analysis on a
database of more than 1,000 family- or founder-owned companies.
The scope of the Credit Suisse 'Family 1000' database and the inclusion of company
financial data from our valuation framework (Credit Suisse HOLT) have allowed us to
interrogate the reasons for this outperformance. The drivers are a combination of factors
that stem largely from a focus on long-term revenue growth and on innovation financed by
organic cash flows.
Our analysis suggests that family-owned companies have a greater focus on long-term
quality growth than non-family-owned companies. Greater family ownership also tends to
increase the use of longer-term financial targets for management remuneration and family-
owned companies prefer conservative funding structures for investments.
Since 2006, the family-owned companies with the best relative share price returnsin
Europe have been those based in Germany and Italy. For the Asia ex Japan region, we
find that the best performing family- and founder-owned companies have been located in
China and India.
Given the more muted relative performance year to date, we also investigated when
family- or founder-owned companies underperform. Periods when this tends to happen
appear to be mostly when economic conditions are strong. With the global economy
moving into the later stages of a recovery, we expect the above average quality (or
defensive) characteristics of family-owned companies to become apparent again.
Lastly, we have selected 25 family- or founder-owned companies from the US, Europe and
Asia. These companies have not only generated some of the strongest shareholder
returns over 3, 5 and 10 years but are also rated Neutral or Outperform by Credit Suisse
research analysts and score above-average on a range of HOLT metrics.
10 September 2018
Thoughts on Themes (ToT) #7Figure 2: Top 25 of Global Best Performers (OP or N rated)
CompanyRICCS RatingCountryIndustryM. Cap $bnQuality PercentileMomentum PercentileValuation PercentileGrowth Percentile
Probability of Market
Implied CFROI
CFROI Median -
Five Year
CFROI Used in ValuationCFROI Market Implied
FY(n)
Leverage, Book Debt
(Net) / EBITDA
(LFY)
Warranted Upside /
Downside (%)
Americas
NikeNKE.NOUSADurables128.7594818222216.116.418.5-0.3-24
The Estee Lauder EL.NOUSAH&PG50.9783820463415.916.916.50.3-12
Tyson FoodsTSN.NNUSAFB&T23.764678133111.614.513.82.4-5
Hormel FoodsHRL.NNUSAFB&T21.9523034343018.121.921.4-0.1-12
Europe
KeringPRTP.PANFRADurables63.1909648895115.920.714.70.823
Coloplast BCOLOb.COODNKHC Equip20.6935022771026.628.135.50.1-45
Partners GroupPGHN.SNCHEDiv. Fin.20.6947819744133.428.324.3-0.7-6
IpsenIPN.PANFRAPharma14.343785895205.710.811.10.3-16
StraumannSTMN.SOCHEHC Equip12.2994512971012.620.624.8-0.2-51
Japan
SoftBank Group9984.TOJPNTelcos99.467982846495.47.06.74.3-12
Keyence6861.TNJPNTech66.3854022903611.615.013.2-2.7-11
Chugai Pharmaceutical4519.TNJPNPharma32.264623678106.27.610.8-2.1-34
Rakuten4755.TNJPNGeneral Retail9.8947048575312.08.06.60.5-9
CyberAgent4751.TOJPNMedia6.7883834261827.222.517.8-1.5-4
Asia Pacific
Jiangsu Hengrui Medicine600276.SSOCHNPharma34.3977624811618.618.218.6-1.1-26
Shenzhou 2313.HKOHKGDurables19.076851087813.816.420.7-1.0-35
Geely Automobile0175.HKOHKGAutos17.5988196828517.028.69.7-0.9177
China Gas0384.HKOHKGUtilities15.91009524873210.513.212.62.7-9
Sino Biopharmaceutical1177.HKOHKGPharma15.2939071783822.519.414.0-1.914
Anta Sports2020.HKOHKGDurables13.5859637901515.818.218.5-2.2-17
Sunny Optical2382.HKOHKGTech12.8971651764119.021.813.4-0.532
Eicher MotorsEICH.BONINDAutos10.9974139954919.427.918.3-0.641
BritanniaBRIT.BONINDFB&T10.4966113881021.521.523.9-0.6-37
Pidilite PIDI.NSNINDMaterials8.19447168716.917.322.3-0.8-42
Havells India HVEL.BOOINDCap. Goods5.97293180613.825.934.4-1.4-65
Source: Company data, Credit Suisse estimates, Credit Suisse HOLT, pricing as of 05/09/18
10 September 2018
Thoughts on Themes (ToT) #7Family-owned outperformance
The longer-term trend of outperformance of family-owned companies is clear, with our
'Family 1000' universe having delivered cumulative excess returns in every region and
sector since 2006. However, the first half of 2018 has been more challenging
performance-wise. We explore the conditions that typically deliver the stronger portfolio
impact from a family-company bias.
The Family 1000 database
The Credit Suisse Family 1000 is a proprietary global database of a thousand companies
built on a 'bottom-up' basis by Credit Suisse equity research analysts and launched in
2017. The definition we adopt to define a family business requires that a company meets
one of the two following criteria:
■Direct shareholding by families or founders is at least 20%.
■Voting rights held by the families or founders is at least 20%.
In this report, we have conducted a thorough review of the database and made
amendments to the universe where appropriate. The 'Family 1000' database used in last
year’s update consisted of 972 companies. Following this year’s review, we excluded 49
companies as the ownership percentage of the founder or families had fallen below 20%.
Our analysis found new companies that were not included, but meet our criteria. Including
these brings our database to 1,015 companies of family-owned companies with a market
capitalization of USD 250 million or more.
Our revised database is dominated by family-owned companies from the Non-Japan Asian
region with a 53% share. However, with 226 companies, Europe now makes up 23% of
the total database, up from 20% last year
Figure 3: Number of family-owned companies by
region
Figure 4: Family-owned companies have
outperformed non-family owned companies since
2006
Europe, 226,
23%
USA, 121,
12%
APxJ, 528,
53%
Latam, 64,
6%
EMEA, 45,
4%
Japan, 19,
2%
Source: The CS Family 1000 in 2018Source: The CS Family 1000 in 2018
Long-term rewards, short-term setback
Updating performance up to the mid-way point of 2018, we find that the long-term trend of
family ownership outperformance, identified in last year's report, remains intact and was
driven by a strong 'family effect' in 2017, with 700 basis points of outperformance by our。