Germany’s biggest value creators, destroyers Analysis by Financial Times

The Financial Times newspaper has published an article arguing that over 20 years, Siemens has led the way while Deutsche Bank languishes at the bottom. Caliber.Az reprints the article.

Two decades ago, German engineering giant Siemens was notorious for being an example of a badly run conglomerate. The Munich-based behemoth at the time boasted 13 different operational units with an eclectic product range from nuclear power plants to lightbulbs and hearing aids. “Siemens makes anything but a profit,” analysts used to joke back then.

Not anymore. Since 2003, the 175-year old company ditched unprofitable units and those who would not fit with core businesses. It spun out its struggling lighting unit, energy operations and fast-growing and highly profitable healthcare segment. It invested heavily in software and green energy kit. The company also worked on longstanding compliance issues that had led to one of the largest bribery scandals in German corporate history.

The transformation has paid off lavishly for shareholders. Over the past 20 years, Siemens has created the largest amount of shareholder value among all of Germany’s listed companies, according to a study published last month by the research arm of German asset manager Flossbach von Storch.

Since 2003, Siemens generated €126bn for its investors as its shares tripled and the company paid out billions in dividends and share buybacks. Including its spin-offs Siemens Healthineers, Siemens Energy and Osram Licht, the total shareholder value created rises to €152bn, a stunning 9 per cent of all the value that the 1013 listed German companies created between them over the past 20 years.

Siemens even eclipses software maker SAP, a long-term favourite of the stock market which created €117bn in shareholder value for investors. Even more strikingly, the five most successful German companies since 2003 — Siemens, SAP, Allianz, Mercedes-Benz and Deutsche Telekom — between them accounted for a remarkable 29.8 per cent of all value created.

“The value which was created is concentrated on just a few stocks,” the study’s author Philipp Immenkötter says. Among the 1,013 companies that since 2003 have been traded on a major German stock exchange, only 58 per cent created any value at all over the full 20-year period.

This degree of concentration in returns is not peculiar to Germany, but mirrors findings of similar research(opens a new window) for the US published in 2018 in the Journal of Financial Economics, an academic journal.

The result partly owes to the study’s methodology, which focuses on the companies’ absolute amount of capital gains, dividends and share buybacks. This gives large companies a higher weight than smaller ones.

Moreover, the ranking depends on the cut-off dates. Immenkötter started his survey in 2003 at the trough after the bursting of the dotcom bubble, making it easier, for example, for Deutsche Telekom to shine as its prior value destruction is excluded. Between its initial public offering in 1996 and the end of 2002, the stock surged stratospherically before cratering.

The finding that positive stock markets returns are largely driven by a few uber-successful names has implications for investors. On the one hand, the results help to explain why so few asset managers consistently manage to beat their benchmarks. Given that the choice of value-destructive shares is so big, fund managers only need to get their calls on a few of the crucial value-creating stocks wrong to miss out.

One other insight from the study is that shareholders who wanted to make money over the past 20 years would have been advised to stay clear of German financial companies, consistent destroyers of shareholder value.

This is not only because of failures such as real estate lender Hypo Real Estate and Wirecard, but also the struggles of lenders such as Commerzbank and IKB, which only survived the financial crisis due to billions of euros in bailouts from the taxpayer.

Of all 1013 companies that were screened by Flossbach von Storch, Germany’s largest lender Deutsche Bank sits at the bottom of the pile, having destroyed an estimated €25bn in a period that was shaped by billions of losses, heavy fines and painful capital increases. Over the past five years, chief executive Christian Sewing has steadied the ship, and the bank last week reported its highest profit in 15 years. Sewing also reiterated his promise to hand back €8bn in capital to shareholders by 2025. He will be hoping past performance will not be a guide to future performance.