Brand Finance is pleased to announce the launch of the Solactive BrandFinance® European Leaders Select 30 Index and Solactive BrandFinance® European Leaders Low Risk 30 Index in collaboration with Solactive AG, an innovative index provider based in Frankfurt.
The Solactive BrandFinance® indices were created in light of the link between brand value and shareholder value. Brand Finance’s share price study conducted in December, 2015 revealed the compelling link between strong brands and stock market performance. In the study, the average return between 2007 and 2015 across the S&P 500 was 49%. However, if Brand Finance’s data was used to create index funds each year, investors could have generated returns of 97%.
Stemming from the connection discovered in the study, Brand Finance has contributed its data on the most valuable European companies with a high brand value to enterprise value (BV/EV) ratio to the creation of the indices. As a result, 30 of the strongest brands are dynamically selected to form each index. The Solactive BrandFinance® indices serve as platforms for investors seeking to invest in companies with strong, valuable brands, high dividend yield and low volatility.
Henning Kahre, Head of Research, Solactive AG, said: “We are very pleased to partner up with Brand Finance plc, a world leading independent branded business valuation and strategy consultancy. We understand the critical importance of brand building and how this can benefit corporations. Strong brands generate customer loyalty and this can lead to better performance. Solactive BrandFinance® European Leaders Select 30 Index and Solactive BrandFinance® European Leaders Low Risk 30 Index give investors the opportunity to be exposed to companies deemed to have a strong brand value according to Brand Finance plc”.
Research has shown that brands are associated with pricing premiums, greater customer loyalty and market share. These factors can have an impact on companies’ profitability and therefore, other things being equal, more valuable brands can be expected to generate higher profits. The Solactive BrandFinance® European Leaders Select 30 Index and the Solactive BrandFinance® European Leaders Low Risk 30 Index seek to capture this performance premium.
The indices’ unique concept also brings to light the importance of acknowledging a company’s intangible assets. Another Brand Finance study, published in February, revealed that intangible assets account for 47% of total global enterprise value, and 52% of total European enterprise value. Without knowing the full value of their brands, companies are at a disadvantage as they will not be aware of the hidden strength that lies there and investors will be equally blind. Disclosure of intangible assets should lead to companies obtaining an additional competitive edge, since the disclosure of both intangible and tangible assets allows for proper strategic management. The brands selected for inclusion within the two indices are a clear indication that properly managed brands can become solid investment opportunities.
David Haigh, CEO, Brand Finance plc, commented: “For over 20 years, Brand Finance plc has been consistently measuring the impact of strong brands on stakeholder attitudes, behaviour and the effect this has on economic performance. In our experience, there is a clear relationship between strong brands and better financial outcomes in terms of higher revenues, and lower costs and volatility. Our collaboration with Solactive allows investors to invest behind the fact that well managed brands present greater potential for higher investment returns.”
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes nearly 100 reports which rank brands across all sectors and countries.
Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.