BRANDS ARE ASSETS
READ GLOBAL business magazines and the issue of marketing and brands is addressed repeatedly. Read South African business magazines and they focus on politics, personalities and share tips. Rarely are the words marketing and branding mentioned and the word “advertising” is often confused with both.
So it was with great interest that I read the excellent report by Marc Hasenfuss – admittedly as a sidebar to Vic de Klerk’s “The ultimate growth share” (5 April) – in which he set out five criteria for pitching a growth stock. There at number two was “Brand strength”. You could have knocked me over with a feather!
Hasenfuss wrote: “Small companies must be in the process of building strong brands or trademarks…” He is, of course, absolutely correct – although I’d argue it applies to all companies, small or large. Also, it’s a process that never ends.
Of the top global brands the broad rule of thumb is that of the market capitalisation (number of shares multiplied by share price), one third tangible (net assets), one third brand(s) value and one third intellectual property.
In SA, as with other emerging countries, the tangible element makes up a much higher proportion and brand value often makes up less than 10% to 15% of market cap.
Hence a reason why overseas buyers sometimes see SA companies’ shares as undervalued.
In investing in the shares of a company, you’re investing in the future potential of that company. Without strong brands, most companies have little future. And what are the main assets of companies? In some cases they’ll be the brands.
One of your share tips is Comair, which as you point out is a beacon to the success of private enterprise compared to its main competitor, testimony sadly to the incompetence of many Stateowned businesses. But often Government fails to even recognise the value of brands they own. However, you might have mentioned that one of Comair’s main assets must surely be its own brand, together with its other brand kulula.com, a significant financial asset.
In the Naspers stable, Finweek as a brand looks to be building value all the time. The more the business world is sensitised to the crucial role of marketing and alerted to the crucial role of brands, the more competitive we’ll become as a nation.