Generally, companies’ valuations follow the classic “fading return” model where it is assumed that eventually, all returns fade to the cost of capital. Yet ValuAnalysis research confirms that a growing number of disruptive companies are not following this path – instead their economic rent (the ratio of free cash flow to economic assets) increases over time rather than decreases and is described as the “Antifade”.
Some companies are implementing or rolling out transformational technologies, which are leveraging their asset base in a way unseen and unknown in previous instances, with the clear consequence of expanding the economic rent.
ValuAnalysis has identified a number of structural trends that are driving leverage across industries:
• A ‘platform effect’ (or instant global reach) is generating hypergrowth for some global companies such as Amazon
• An energy challenge is triggering a total re-think of the Automotive sector, with Tesla at the center of this revolution
• Dematerialization of payments is increasing the franchise of companies like Visa
• Growth is accelerating in some previously cyclical sectors, in particular semi-conductors. 5G, an acceleration in computing and artificial intelligence and Industry 4.0, are driving this.
Tomorrow, we’ll look at how Amazon fits into the Antifade model.