Survey by Strategy&Brasil with 750 publicly traded companies around the world show average revenue growth of 3.3% between 2017 and 2021
10/27/2022
A study conducted by Strategy& Brasil, PwC’s strategic consulting arm, with 750 publicly traded utilities companies around the world concluded that electric power and sanitation companies showed better financial performance in the last five years. The companies posted an average revenue growth of 3.3% between 2017 and 2021 driven by the electric power industry, with an average rate of 4.8%, and sanitation, with 4.3%.
The study is based on public data from companies that supply electricity, piped gas, water and sewage, and fuel services, as well as companies classified as “multi-utilities,” which operate in more than one field. The financial data are represented in dollars to gauge the real growth of the companies and allow comparison among them.
The study also shows that the 43 Brazilian companies that were part of the study had a significant improvement in return rates, but shrinking revenue in dollars because of the devaluation of the real between 2017 and 2021, which caused a loss of competitiveness compared to the rest of the industry worldwide.
In the case of Brazilian companies, what has been verified over the last five years was a very significant improvement in the return on invested capital. By the way, most Brazilian companies are classified in study as “cash cows” – an expression for companies with high cash generation.
The problem is that all this evolution ends up being overshadowed by the depreciation of the real from 2017 onwards, which means that although they have grown in local currency, the weakened real has caused Brazilian power companies to lose competitiveness against their global peers, said Daniel Martins, a partner at Strategy& Brasil.
According to Mr. Martins, part of the good performance of the electric power utilities pointed out in the study was due to companies that work with renewable power generation and groups that operate in segments such as distribution and transmission. This is because, according to the specialist, the market’s greater interest in companies linked to the energy transition reflects in better returns and higher growth rates of these companies compared to corporations focused on fossil energies.
As an example, Strategy& shows that the future value-to-EBITDA ratio of renewable energy companies has an average of 11.7 times, against 11.2 times of fossil companies. Renewable companies also had an average real revenue growth rate of 5% per year, against 2.3% for fossil companies.
Another point in question is the execution of the strategies by the companies, which resulted in gains in market capitalization of more than four times the average of the other companies. On the other hand, companies that were not successful in implementing their projects have lost an average of 11% in market capitalization over the last five years.
“This shows that execution is as important as strategy,” said Mr. Martins.
*By Fábio Couto — Rio de Janeiro
Source: Valor International