www.ubs.com/investmentresearch
This report has been prepared by UBS Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 31.
UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision.
Global Research 29 September 2016
Family-Controlled Firms
Why do Family-Controlled Companies Outperform?
– Version 2.0; Disciplined Governance
Family-controlled public companies consistently outperform – recently, too
A year ago, we published a Q-Series report analysing the performance and risk profile
of family-owned publicly traded companies globally (April 2015, report). A proprietary
analysis showed that family-owned small and midcap companies consistently
outperformed for a long period all across regions globally. A year later, we have
updated our statistics – and they show that performance has also been favourable in
the past 12 months. Family-owned companies are up 11% vs. global indices up 5%.
Disciplined governance is king and queen
In most regions, the outperformance by family-owned companies has persisted over the
past 12 months (except in Asia, where they performed in line with large-cap indices).
We remain convinced that family-owned companies, once floated, usually combine the
benefits of funding via capital markets with a focus on the core business, less value-
destructive M&A, and more effective general governance. The positives of family 'skin
in the game' have historically outweighed any potential negatives which do exist.
Risk-reward metrics remain favourable; the UBS proprietary framework
Volatility metrics – these continue to show that outperformance does not come at the
expense of higher risk. On the contrary: volatility is lower for family-owned firms,
although not in all regions (e.g. Latam). Moreover, based on governance areas that we
believe drive outperformance (such as transparency, board succession, shareholder
rights and remuneration), we identify the key metrics for analysing which companies
have the best corporate governance. UBS’ global index of 250 family-owned stocks has
outperformed over one, three, five and 10 years, with lower volatility.
We highlight stocks in Europe & Asia, attractive family-owned stocks we like
We have identified several family-owned companies in Europe which combine a good
track record with interesting valuation metrics. Our most favoured stocks on the theme
include names such as Ferrovial, Ebro Foods, Fuchs Petrolub SE, GFT Technologies,
Granvision, Hexpol, Melia Hotels, Moncler, Ratos, Sartorius, SCA, SEB, SFS Group and
Trelleborg. In Japan we like the ¥100-shop operator Seria (JP2782, Buy), Japan’s
biggest pet insurer Anicom Holdings (JP8715, Buy) and telecom service and corporate
solutions provider Hikari Tsushin (JP9435, Buy) as well as CyberAgent (Buy, PT Y8,000).
In Asia, outside of Japan we highlight our Buy ratings in Hyundai Mobis, CK Hutch,
UOL, City Developments (Singapore), Man Wah and Nine Dragons Paper, among
others.
Equities
Europe Ex. UK
Financial
Bosco Ojeda
Anal
y
st
bosco.o
j
+34-91-436 9078
Julie Hudson, CF
A
Anal
y
st
+44-20-7568 4632
Edwin Chen, CF
A
Anal
y
st
S1460516010001
edwin.chen@ubssecurities.com
+86-105-832 8186
Mariko Watanabe
Anal
y
st
mariko.watanabe@ubs.com
+81-3-5208 6297
Family-Controlled Firms 29 September 2016
2
A few top picks: family-owned stocks
where we see upside
On the presentation that follows (page 6 onwards) we disclose further
details of our findings. Specifically in some markets, such as Europe or Asia
where the presence of family-owned stocks is particularly active, we
highlight our top picks.
We highlight stock ideas in Europe
We have identified several family-owned companies in Europe which combine a
good track record with interesting valuation metrics. Our most favoured stocks on
the theme include names such as Ferrovial, Ebro Foods, Fuchs Petrolub SE, GFT
Technologies, Grandvision, Hexpol, Melia Hotels, Moncler, Ratos, Sartorius, SCA,
SEB, SFS Group and Trelleborg.
Figure 1: Top picks of family-owned midcaps in Europe
Stoc
k
Price
UBS Target
price
% chg UBS rating
Mkt. cap
(€m)
Stock perf.
12m
Stock perf.
YTD
Adj. PE
2016E
EV/EBITDA
2016E
Div. yield
2016E
Ferrovial 18.3 20.0 9.3% Buy 13,427 -12.2% -10.2% -- -- 3.9%
Ebro Foods 20.4 22.0 7.7% Buy 3,142 17.3% 13.4% 18.4 10.1 3.4%
Fuchs Petrolub SE 40.7 46.5 14.4% Buy 5,356 3.3% -6.1% 22.8 13.6 2.1%
GFT Technologies 18.6 25.0 34.7% Buy 488 -15.3% -41.6% 17.4 10.9 1.6%
Grandvision 25.0 26.5 6.0% Buy 6,361 9.0% -9.6% 25.7 13.3 1.2%
Hexpol AB 77.2 100.0 29.5% Buy 26,572 -17.0% -14.8% 19.1 12.0 2.2%
Melia Hotels 11.2 13.6 21.1% Buy 2,235 -9.8% -7.9% 25.4 9.9 1.6%
Moncler Spa 15.2 17.5 15.1% Buy 3,800 -4.5% 18.3% 19.7 11.2 1.2%
Ratos 40.3 65.0 61.3% Buy 14,779 -19.6% -16.9% -- -- 8.7%
Sartorius AG 74.2 75.0 1.1% Neutral 4,862 40.5% 24.3% 36.4 20.0 0.7%
SCA 256.5 285.0 11.1% Buy 180,140 9.9% 4.2% 19.6 11.1 2.2%
SEB 124.8 134.0 7.4% Buy 6,147 51.9% 32.3% 23.1 16.3 1.3%
SFS Group AG 77.4 82.0 6.0% Buy 2,901 31.9% 10.7% 19.8 10.1 1.9%
Trelleborg AB 165.1 165.0 -0.1% Buy 44,742 25.9% 1.2% 17.8 11.5 2.4%
Source: UBS estimates
Asia: family-owned stocks we like
Figure 2: Asian family owned stocks we like
St
ock
Price
UBS Target
price
% chg UBS rating
Mkt. cap
(local)
Stock perf.
12m
Stock perf.
YTD
Adj. PE
2016E
EV/EBITDA
2016E
Div. yield
2016E
Hyundai Mobis 284000 360000 26.8% Buy 27,644,559 21.8% 14.4% -- -- 2.1%
CK Hutchison Holdings 99.4 117.0 17.8% Buy 383,461 -0.5% -4.7% 11.9 5.9 2.7%
U
OL Group
5.6 7.6
33.9% Buy 4,491 -5.5% -9.0% 12.8 21.7 2.7
%
F
eng Tay 144.5
172.0
19.0% Bu
y
96,517 -22.2% -5.3% 20.4 12.0 3.1
%
Man Wah
Holdings
5.4 6.3
17.0% Buy 20,612 37.9% 14.0% 13.0 10.3 4.1
%
N
ine Dragons Paper
7.2 9.0
24.5% Buy 33,520 84.0% 60.8% 10.9 8.4 1.0
%
Source: UBS estimates
Family-Controlled Firms 29 September 2016
3
Hyundai Mobis – BUY
Hyundai Mobis became an auto parts company when it acquired Hyundai's and
Kia Motors' aftermarket parts divisions in 2000. Mobis also acquired several auto
parts makers, including Hyundai Autonet in 2009. It acquired Hyundai Life in 2012.
It has three major auto divisions: 1) aftermarket parts; 2) modules; and 3) core
parts. Core parts include anti-lock braking systems, airbags, suspensions, lights and
various Advanced Driving Assistance Systems (ADAS). Its module and core parts
revenue are derived mostly from the Hyundai Motor group. Mobis is the largest
shareholder of Hyundai Motor. Mobis is addressing the two fastest-growing
markets in autos: (1) green cars: hybrids (HEV), plug-in hybrids (PHEV), electric
vehicles (EV) and fuel cell EV (FCEV); and (2) ADAS. IHS Global Insight forecasts the
global green car market to grow at a 24% CAGR to 7mn units by 2020 (vs 2.4mn
in 2015). We also expect the global ADAS market to grow by well over 20% pa for
the next five years.
CK Hutchison – BUY
CK Hutchison (0001.HK) is 30%-owned and controlled by Li Ka Shing and his
family. CKH operates a portfolio of businesses in health & beauty retail,
infrastructure, telecom and ports globally. We are comfortable with corporate
governance. We like the stock here on a fundamental turnaround in European
mobile sector and as it 'fixes' its European mobile business through market
consolidation.
UOL – BUY
UOL Group is a diversified Singapore real estate company with interests in property
development, property investment, and hotel operations. Its net profit has grown
at a 13.3% CAGR over the past decade, led by an experienced and stable
management team. We like the company for its defensive earnings, attractive
valuation, and disciplined approach to landbanking. Through its hotel subsidiary,
Pan Pacific Hotels Group, we think UOL is well placed to benefit from a pick-up in
intra-Asia travel. Over the medium term, the potential consolidation of control over
its listed associate, United Industrial Corporation, could lead to efficiency gains,
greater flexibility for restructuring, and/or the monetization of assets, which we
believe would lead to a narrowing of the discount to RNAV and increased investor
interest.
City Developments (Singapore) – BUY
This would qualify as a stock which: 1) is family controlled (even though the CEO is
an unrelated third party, the Executive Chairman is from the Kwek family); 2) has a
good track record in corporate governance; 3) has seen its stock outperforming
the Singapore market YTD; and 4) is Buy-rated with upside potential of c7% to our
price target.
Feng Tay – BUY
Feng Tay (9910.TW) was established in 1971 and is mainly an OEM for athletic
footwear. Its major customer is Nike, which accounted for 80% of total sales in
2014. Feng Tay is headquartered in Taiwan, with production plants in China,
Vietnam, Indonesia and India. The company currently has around 95,000
employees and supplies more than one-sixth of Nike's total annual sales volume.
We believe Feng Tay should be able to gain share among Nike's OEM vendors with
its more aggressive expansion plan and production cost advantages starting in
Family-Controlled Firms 29 September 2016
4
2018. Feng Tay has become more aggressive about expanding capacity and should
have two more new plants in H217. Besides, Feng Tay has a higher proportion of
capacity located outside of China, in areas in which it benefits from relatively lower
labour costs.
Man Wah – BUY
Man Wah (1999.HK), a family-owned business with the founder's family owning
63% stake, is the largest recliner sofa producer globally, adopting a retail model in
China (No. 1) and ODM model in the US (No. 3). Leveraging on its competitive
product design, quality and pricing, the company has been gaining market shares
in both China and the US market with expanding margins in recent years. In
addition, with the strong cash flow and balance sheet, the company is willing to
pay out no less than 50% of earnings as dividends and to buy back shares to
enhance returns to shareholders. We believe the company can continue gaining
shares in the US and China, with margins to improve further. At a low-teens
forward PE and a mid-single-digit dividend yield, we view its valuations as
attractive and thus have a Buy rating.
Nine Dragons Paper – BUY
Nine Dragons (2689.HK), a family-owned business with the founder's family
owning a 67% stake, is the largest containerboard producer in China. With supply
growth becoming more disciplined, due to limited new capacity additions
(difficulty in getting government approvals and bank financing) and small capacity
closures (higher environmental standards), and with the demand growth still stable
at low/mid-single digits, industry supply/demand is improving structurally. Trading
at a high-single-digit PE or close to its book value, with improving profitability and
balance sheet (declining gearing and less foreign debt), we believe this could
further re-rate and thus have a Buy rating.
Japan: we identify quite a few interesting ideas
At about 30% of the 3,600 or so companies that are listed in Japan, the founding
families own the representation rights and 10% or more of the shares. Following
similar studies in Europe and the US, surveys and research on such family-owned
enterprises have been carried out in Japan since the mid-2000s. The statistics that
they have generated show that companies where top management has high
shareholdings are superior to those with low such exposure in terms of their
profitability, growth potential and balance sheet quality, as well as on share-price
returns. Among the companies that were listed at the end of 2000, the top three
share-price performers by the end of 2015 were blood analysis equipment/reagent
manufacturer Sysmex (JP6869), infant bottle and nursery product manufacturer
Pigeon (7956), and sports footwear manufacturer Asics (JP7936), all of which are
family-owned. The best performers in 2005-2015 were Monotaro (JP3064),
Fronteo (UBC, JP2158) and DIP (JP2379). Top management shareholdings act in a
'good' governance role so that shareholders' interests coincide with those of the
people who lead the company. Of course, there have been some cases where
management has prioritized its own private interests, damaging shareholder
returns. The FSA decided to introduce a 'corporate governance code' for listed
companies in 2015 to promote governance reform among Japanese firms through
the appointment of independent external directors and the unwinding and
restriction of cross-shareholdings.
Family-Controlled Firms 29 September 2016
5
Figure 3: Top picks in Japanese midcaps
Stoc
k
Price
UBS Target
price
% chg UBS rating
Mkt. cap
(€m)
Stock perf.
12m
Stock perf.
YTD
Adj. PE
2016E
EV/
EBITDA 2016E
Div. yield
2016E
Anicom Holdings 2530.0 4000.0 58.1% Buy 45 -6.1% -23.3% -- -- 0.2%
Hikari Tsushin 9490.0 12000.0 26.4% Buy 434 12.9% 14.3% 21.4 4.3 2.2%
Seria 7930.0 10000.0 26.1% Buy 297 33.9% 34.6% 25.0 12.7 0.6%
CyberAgent 2960.0 4000.0 35.1% Buy 366 27.9% 18.5% 18.0 7.5 0.8%
Source: UBS estimates
Taking into account business growth potential, cash flow stability, and governance
levels, our focus in this respect is on ¥100-shop operator Seria (JP2782, Buy),
Japan’s biggest pet insurer Anicom Holdings (JP8715, Buy) and telecom service and
corporate solutions provider Hikari Tsushin (JP9435, Buy) as our top pick stocks for
the small- and mid-cap sector.
CyberAgent (Buy, PT Y8,000)
CyberAgent is one of Japan's foremost comprehensive internet service companies,
characterized by a unique managerial style. Its main businesses are Ameba,
internet advertising, games, media and others, and investment promotion. The
company began its AbemaTV internet TV service in April 2014, for which the initial
budget for the first fiscal year was Y9bn. Assuming that CyerAgent generates
annual OP of about Y37bn, this represents a very big investment. The spend could
increase further in FY17, so we forecast a yoy decline in consolidated OP. In a
rapidly changing internet sector, companies are continually investing as they seek
the ‘next growth field’. Even so, there are very few firms that have committed to
the sort of major, long-term investment carried out by CyberAgent. Since the late
2000s, CyberAgent has eagerly invested in its Ameba blog media, despite the
doubts initially expressed by many within the market, and over that time it has
grown into a key earnings pillar for the company. As the business has started to be
seen as profitable, market opinion has changed too. The company’s current
investment in AbemaTV seems to repeat this process. Our forecasts for AbemaTV
assume that the domestic video advertising market will expand to Y275bn in
CY20. We expect CyberAgent to take a 10% share of this. We believe the
business will turn profitable in FY20. Under the leadership of founder Susumu
Fujita, we believe CyberAgent will continue to support investment in Ameba and
AbemaTV.
Family-Controlled Firms 29 September 2016
6
Why do family-owned companies outperform?
The value of disciplined governance
Bosco Ojeda
Head of Small/Midcap Research
Europe
Tel: +34 91 436 9078
This document has been prepared by UBS Limited
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON SLIDE 18
UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that
could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Global Research September 2016
Family-Controlled Firms 29 September 2016
7
UBS Research on family-owned companies
(April 2015, report link)
Source: UBS
Family-Controlled Firms 29 September 2016
8
2
Summary
• Strong weight of SMEs in employment and value added…family firms are key
– In Europe, for instance, SMEs represent 50-70% of most countries' employment
• A long-term approach to capital allocation is key for corporates…family-
controlled floated companies have a good track record
– Combine the benefits of funding via capital markets with a focus on core business, less
value-des
tructive M&A, balanced incentives and more effective general governance
• Some ideas in Europe and Asia where there is pre-eminence of family-owned
stocks:
We have identified several family-owned companies in Europe which combine a good track record with
in
teresting valuation metrics. Our most favoured stocks on the theme include names such as Ferrovial, Ebro
Foods, Fuchs Petrolub SE, GFT Technologies, Grandvision, Hexpol, Melia Hotels, Moncler, Ratos, Sartorius,
SCA, SEB, SFS Group and Trelleborg AB.
In Japan we like the ¥100-shop operator Seria (JP2782, Buy), Japan’s biggest pet insurer Anicom Holdin
gs
(JP87
15, Buy) and telecom service and corporate solutions provider Hikari Tsushin (JP9435, Buy) as
well as
Cyb
erAgent (Buy, PT Y8,000). In Asia, out of Japan we highlight our Buy ratings on Hyundai Mobis, CK
Hutch, UOL, City Developments (Singapore), Man Uah, Nine Dragons Paper, among others
Family-Controlled Firms 29 September 2016
9
3
European and Asian family-owned companies we like
• Highlighted stocks in Europe and Asia
Source: UBS estimates
Priced as of Sept. 29th 2016
Stock
Price
UBS
Target
price % chg
UBS rating
Mkt. cap
(€m)
Stock perf.
12m
Stock perf.
YTD
Adj. PE
2016E
EV/
EBITDA
2016E
Div. yield
2016E
Price/book
2016E
Hyundai Mobis 284000.0 360000.0 26.8% Buy 27,644,559 21.8% 14.4% -- -- 2.1% --
CK Hutchison Holdings 99.4 117.0 17.8% Buy 383,461 -0.5% -4.7% 11.9 5.9 2.7% 0.9
UOL Group 5.6 7.6 33.9% Buy 4,491 -5.5% -9.0% 12.8 21.7 2.7% 0.6
Feng Tay 144.5 172.0 19.0% Buy 96,517 -22.2% -5.3% 20.4 12.0 3.1% 6.5
Man Wah Holdings 5.4 6.3 17.0% Buy 20,612 37.9% 14.0% 13.0 10.3 4.1% 4.5
Nine Dragons Paper 7.2 9.0 24.5% Buy 33,520 84.0% 60.8% 10.9 8.4 1.0% 1.3
Anicom Holdings 2530.0 4000.0 58.1% Buy 45 -6.1% -23.3% 32.2 -- 0.2% 4.2
Hikari Tsushin 9490.0 12000.0 26.4% Buy 431 12.9% 14.3% 21.4 4.3 2.2% 2.6
Seria 7930.0 10000.0 26.1% Buy 296 33.9% 34.6% 25.0 12.7 0.6% --
CyberAgent 2960.0 4000.0 35.1% Buy 369 27.9% 18.5% 18.0 7.5 0.8% 4.3
Stock
Price
UBS
Target
price % chg
UBS rating
Mkt. cap
(€m)
Stock perf.
12m
Stock perf.
YTD
Adj. PE
2016E
EV/
EBITDA
2016E
Div. yield
2016E
Price/book
2016E
Ferrovial 18.3 20.0 9.3% Buy 13,427 -12.0% -10.0% -- -- 3.9% --
Ebro Foods 20.4 22.0 7.7% Buy 3,142 17.6% 13.7% 18.4 10.1 3.4% 1.5
Fuchs Petrolub SE 40.7 46.5 14.4% Buy 5,356 2.9% -6.5% 22.8 13.6 2.1% 4.6
GFT Technologies 18.6 25.0 34.7% Buy 488 -15.7% -41.8% 17.4 10.9 1.6% 4.1
Grandvision 25.0 26.5 6.0% Buy 6,361 8.7% -9.9% 25.7 13.3 1.2% 5.9
Hexpol AB 77.2 100.0 29.5% Buy 26,572 -17.2% -15.0% 19.1 12.0 2.2% 3.7
Melia Hotels 11.2 13.6 21.1% Buy 2,235 -9.9% -8.0% 25.4 9.9 1.6% 1.8
Moncler Spa 15.2 17.5 15.1% Buy 3,800 -5.1% 17.6% 19.7 11.2 1.2% 5.5
Ratos 40.3 65.0 61.3% Buy 14,779 -19.6% -17.0% -- -- 8.7% --
Sartorius AG 74.2 75.0 1.1% Neutral 4,862 39.7% 23.6% 36.4 20.0 0.7% 5.3
SCA 256.5 285.0 11.1% Buy 180,140 9.3% 3.7% 19.6 11.1 2.2% 2.4
SEB 124.8 134.0 7.4% Buy 6,147 51.6% 32.0% 23.1 16.3 1.3% 3.3
SFS Group AG 77.4 82.0 6.0% Buy 2,901 31.2% 10.1% 19.8 10.1 1.9% 1.6
Trelleborg AB 165.1 165.0 -0.1% Buy 44,742 25.8% 1.0% 17.8 11.5 2.4% 1.8
Family-Controlled Firms 29 September 2016
10
4
Report origin: a focus on Smallcaps and governance
• Smallcap stocks have outperformed Largecaps for the past 25 years…including in
th
e US, Europe and EM. Key drivers are growth, M&A and…governance.
Europe Performance 15 years
Global Performance 15 years
Source: UBS, Thomson Datastream,
based on MSCI Indices
Family-Controlled Firms 29 September 2016
11
5
Drivers of outperformance...one factor is better governance
• Why do Smallcaps outperform?...growth is more consistent, but a better score by Smallcaps
on corporate governance is very important, particularly on board issues and pay
• If governance is better (a surprise to some)…let's see if families have a role in that
GMI corporate governance scores for S&P500 vs. Russell 2000
Source: GMI. GMI scores are from 1 to 100 – 100 being the best governance practices.
The overall governance score is split into three components: board, pay and ownership and control
Western Europe governance metrics – large vs. small/midcaps
Source: GMI. GMI scores are from 1 to 100 – 100 being the best governance practices.
The overall governance score is split into three components: board, pay and ownership and control
Family-Controlled Firms 29 September 2016
12
6
Family-owned firms have consistently outperformed (1)
• The outperformance across all regions – based on market value weight
Global performance since 2005 Europe performance since 2005
Source: UBS, Thomson Datastream
Asia Ex Japan performance since 2005
LATAM performance since 2005
Family-Controlled Firms 29 September 2016
13
7
Family-owned firms have consistently outperformed (2)
• The outperformance across all regions – based on equal value weight
Global performance since 2005 Europe performance since 2005
Source: UBS, Thomson Datastream
Asia Ex Japan performance since 2005
LATAM performance since 2005
Family-Controlled Firms 29 September 2016
14
8
Family-owned firms have consistently outperformed (3)
Performance since 2005 (based on Market Value weights)
Performance since 2005 (based on Equal Value weights)
Source: UBS, Thomson Datastream
Index Global Europe Asia Ex Japan LATAM
UBS Family-owned Index (Market Value Weights) 112.5% 62.2% 172.0% 137.0%
MSCI Largecap Index 42.4% 1.8% 72.4% 34.4%
MSCI Midcap Index 63.8% 29% 89.0% 50.2%
MSCI Smallcap Index 79.3% 68.6% 77.8% 47.6%
Index Global Europe Asia Ex Japan LATAM
UBS Family-owned Index (Equal Value Weights) 544.9% 155.4% 807.8% 331.6%
MSCI Largecap Index 42.4% 1.8% 72.4% 34.4%
MSCI Midcap Index 63.8% 29% 89.0% 50.2%
MSCI Smallcap Index 79.3% 68.6% 77.8% 47.6%
Family-Controlled Firms 29 September 2016
15
9
Family-owned firms have consistently outperformed (4)
Global family-owned midcaps have outperformed
Europe family-owned midcaps have outperformed
Source: UBS, Thomson Datastream
Index Perf. 10y Perf. 5y Perf. 3y Perf. 1y
UBS Family-owned Index (Equal Value Weights) 370.9% 66.5% 34.3% 11.0%
MSCI Largecap Index 24.0% 41.5% 15.9% 4.7%
MSCI Midcap Index 38.9% 46.1% 18.6% 5.0%
MSCI Smallcap Index 56.2% 52.4% 19.7% 6.6%
Index Perf. 10y Perf. 5y Perf. 3y Perf. 1y
UBS Family-owned Index (Equal Value Weights) 98.3% 45.4% 16.6% 5.3%
MSCI Largecap Index -17.0% 35.0% 9.2% -1.1%
MSCI Midcap Index -1.2% 57.5% 24.2% 3.0%
MSCI Smallcap Index 33.3% 83.5% 35.5% 5.0%
Index Perf. 10y Perf. 5y Perf. 3y Perf. 1y
UBS Family-owned Index (Equal Value Weights) 560.7% 69.0% 40.4% 8.7%
MSCI Largecap Index 41.2% 7.6% 8.7% 10.8%
MSCI Midcap Index 49.2% -1.6% 6.4% 8.6%
MSCI Smallcap Index 47.6% -0.6% 4.6% 7.1%
Asia ex-Japan family-owned midcaps have outperformed
Family-Controlled Firms 29 September 2016
16
10
What about risks?...family firms have low volatility
• This outperformance does not seem to come at the expense of a higher risk profile
• We ran an analysis to capture the volatility of family firms versus other Smallcap, Midcap and Largecap
companies (as measured by the standard deviation of returns), and found that family firms have
an
attr
active risk profile, both globally and at the regional level in Europe, Asia and Latam.
Global markets risk/return (since 2005) Europe markets risk/return (since 2005)
Source: UBS, Thomson Datastream
Asia Ex Japan markets risk/return (since 2005)
LATAM markets risk/return (since 2005)
Family-Controlled Firms 29 September 2016
17
11
What about fundamentals?...a mixed view
• Family-owned companies screen quite well in terms of margins and returns, despite a lower gearing, on a
range of
metrics – margins, ROE, gearing and dividend yield – over a five-year period. There are
some
regi
onal differences, but the results are broadly consistent across geographies
.
Global: five year average fundamentals
Europe: five year average fundamentals
Source: UBS estimates
Asia Ex Japan: five year average fundamentals
Family-Controlled Firms 29 September 2016
18
12
What about fundamentals? (continued)
• Family-owned firms' earnings growth seems above average and explains a large part of the
outperfor
mance of family businesses. In addition, family firms have been delivering 10%-plus annual
earnings growth at a steady pace. Lower dividend yield may be partly explained by the valuation
gap
between fami
ly and non-family firms
Global: five year average fundamentals
Europe: five year average fundamentals
Source: UBS estimates
Asia Ex Japan: five year average fundamentals
Valuation metrics Family-owned index Large-caps Mid-caps
Small-
caps
EBIT margin % 15.7 12.0 8.2 6.8
DY (UBS) % 2.1 2.9 2.5 2.5
RoE (UBS) % 15.9 13.0 9.5 5.5
Gearing (UBS) % 22.3 41.1 53.8 55.8
Valuation metrics Family-owned index Large-caps Mid-caps
Small-
caps
EBIT margin %
17.2 8.9 7.4 5.0
DY (UBS) %
1.7 2.9 2.5 1.9
RoE (UBS) %
16.2 12.8 9.6 5.4
Gearing (UBS) %
27.0 25.2 46.9 75.2
Valuation metrics Family-owned index Large-caps Mid-caps
Small-
caps
EBIT margin %
10.6 8.5 6.8 10.6
DY (UBS) %
4.0 2.9 2.4 4.0
RoE (UBS) %
11.7 10.2 5.8 11.7
Gearing (UBS) %
44.3 48.6 20.6 44.3
Family-Controlled Firms 29 September 2016
19
13
Valuations – a small premium seems justified
• Family firms currently trade at a 10-30% valuation premium over Midcaps/Largecaps on a P/E basis.
However, it seems that family-owned companies are trading broadly in line with their historical multiples,
at around 21x P/E.
Current P/Es
Source: UBS estimates
Historical P/Es – five year average
Global – historical five-year valuations Europe – historical five-year valuations Asia Ex Japan – historical five-year valuations
Family-Controlled Firms 29 September 2016
20
14
Disciplined governance is king and queen
• Markets seem to have under-priced both the growth and risk associated with public companies that have
founding families as major shareholders. Our proprietary analysis suggests that family-owned Small a
nd
Mi
dcaps have consistently outperformed their respective indices
• We believe floated family firms have generally passed the risks of the initial founding
phase and have the
advantage of
stable shareholders with long-term value-creation strategies
• Based on governance areas that we believe drive outperformance (such as transparency, board succession,
shareholder rights and remuneration), our analysts ranked close to 250 family-owned Small and Midcap
companies globally to identify those with the best corporate governance
Source: UBS
Smallcap corporate governance – UBS ranking criteria
Area of
governance
Scoring criterion
Transparency and
access
Communication of financial targets to investors
Willingness of senior management to meet investors
Board Quality, representation and risks to minority representation
Director shareholdings
Succession Management independence from controlling family
Visibility of succession
Capital allocation Sticking to core business
Returning excess cash to shareholders
Motivation of controlling group/management
Shareholder rights One-share, one-vote
Absence of anti-takeover provisions
Track record on treatment of minorities
Remuneration
targets
Alignment with long-term shareholder value-creation
Track record of maintaining targets
Total
Family-Controlled Firms 29 September 2016
21
15
Academic research is aligned with our findings
• Family businesses seem to outperform their peers on profitability metrics
• We believe floated family firms have generally passed the risks of the initial founding phase an
d have the
advantage
of stable shareholders with long-term value-creation strategies
• Based on governance areas that we believe drive outperformance (such as transparency, boa
rd succession,
sharehol
der rights and remuneration), our analysts ranked close to 250 family-owned small and midcap
companies globally to identify those with the best corporate governance
Source: UBS
Family-Controlled Firms 29 September 2016
22
16
Alpha generation potential as Smallcaps are undercovered
• Smallcaps/Midcaps have fewer analysts covering them
Average number of sell-side analysts by market capitalisation
Source: Bloomberg. Note: The data reflects the average number of sell-side analysts assigned to large-cap stocks with a market capitalisation of more than €5bn,
midcap stocks with a market capitalisation between €1.5bn and €5bn, and smallcap stocks with a market capitalisation between €200m and €1.5bn from a database of
3,000 European companies. We have adjusted the numbers to reflect distant coverage factors.
Median number of analysts – in deciles
Source: Bloomberg. Note: From a database of 3,000 European companies, ranked by ascending order of market capitalisation and then divided at regular intervals of
200 companies
Family-Controlled Firms 29 September 2016
23
17
UBS European Top 20 performance
• UBS European Top 20 Smallcaps has consistently created alpha
2007 2008 2009 2010 2011 2012 2013 2014 2015
2016
Y-T-D
7.52%
-38.10% 89.15% 46.82% -10.89% 29.28% 49.54% 14.43% 27.66%
-0.75%
-7.51%
-51.87% 59.56% 30.35% -17.12% 27.54% 33.91%
6.83%
23.95%
-3.04%
15.03% 13.76% 29.59% 16.46%
6.23% 1.75%
15.62%
7.60% 3.70% 2.29%
MSCI Europe Small Cap (EUR Total Returns)
Spread Between Portfolio and Benchmark (α)
Portfolios
Europe Small Cap 20
Source: Abacus Analytics, Inc. MSCI
Note: The indicated performance returns are based on capital appreciation, excluding dividends and transaction costs such as commissions, fees, margin interest
and interest charges. Actual transactions adjusted for such transaction costs will result in reduced total returns. Prices of stocks in this performance reflect closing
prices. Since its inception on 29 December 2006, the portfolio has had 407 stocks, of which 244 advanced and 163 declined while on the list. A complete record of
all the recommendations upon which the report is based is available from UBS upon written request. Past performance is not an indication of future results.
Family-Controlled Firms 29 September 2016
24
Valuation Method and Risk Statement
Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect
to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her
personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS,
and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed by that research analyst in the research report.
There are risks in investing in equities and smallcaps may entail high specific risks linked to external factors such as the macro
performance, financial risk, country risk and specific stock risks that could be subject to uncertain returns.
The risks of investing in European family-owned companies include specific risks relating to each company as well as generic risks
such as macroeconomic impact, sovereign risk in the European union, exposure to emerging markets, financial risk, etc. On top
of that, family-owned companies can face risks related to large shareholder treatment of minority shareholders, liquidity risks,
and risks related to conflicts of interests.
18
Family-Controlled Firms 29 September 2016
25
Required Disclosures
19
UBS Limited: Bosco Ojeda.
Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed
in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research.
This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS.
For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures
concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable
indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by
the China Securities Regulatory Commission. UBS acts or may act as principal in the debt securities (or in related derivatives) that may be the subject of this report. This recommendation
was finalized on:
UBS Investment Research: Global Equity Rating Definitions
12-Month Ratin
g
Definition Covera
g
e
1
IB Services
2
Bu
y
FSR is > 6% above the MRA. 47%
32
%
Neutral
FSR is between -6% and 6% of the MRA. 38%
25
%
Sell
FSR is > 6% below the MRA. 15%
21%
Short-Term Ratin
g
Definition Covera
g
e
3
IB Services
4
Buy
Stock price expected to rise within three months from the time the rating was assigned because
of a specific catalyst or event.
<1
% <1
%
Sell
Stock price expected to fall within three months from the time the rating was assigned because of
a specific catalyst or event.
<1
% <1
%
Source: UBS. Rating allocations are as of 30 June 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months.
KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return
Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be
flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the
investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental
view or investment case. Equity Price Targets have an investment horizon of 12 months.
EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record,
discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record,
discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include
the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate
to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.
Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with FINRA. Such analysts
may not be associated persons of UBS Securities LLC and therefore are not subject to the FINRA restrictions on communications with a subject company, public appearances, and trading
securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows.
29 September 2016, 16:04 PM GMT.
Family-Controlled Firms 29 September 2016
26
Company disclosures
20
Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not
registered/qualified as research analysts with FINRA. Such analysts may not be associated persons of UBS Securities LLC and
therefore are not sub
j
ect to the FINRA restrictions on communications with a sub
j
ect compan
y
, public appearances, and
trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate
contributing to this report, if any, follows.
UBS Securities España SV, SA: Bosco Ojeda. UBS Limited: Julie Hudson, CFA. UBS Securities Co. Limited: Edwin
Chen, CFA. UBS Securities Japan Co., Ltd.: Mariko Watanabe.
Company Disclosures
Company Name Reuters 12-month rating Short-term rating Price Price date
Anicom Holdings
8715.T Bu
y
N/A ¥2,497 29 Sep 2016
City Developments Limited
CTDM.SI Bu
y
N/A S$8.95 28 Sep 2016
CK Hutchison Holdings
7, 16
0001.HK Bu
y
N/A HK$99.35 28 Sep 2016
CyberAgent
4751.T Bu
y
N/A ¥2,981 29 Sep 2016
Ebro Foods
EBRO.MC Bu
y
N/A €20.42 28 Sep 2016
Feng Tay
9910.TW Bu
y
N/A NT$144.50 28 Sep 2016
Ferrovial
2, 4
FER.MC Bu
y
N/A €18.31 28 Sep 2016
Fuchs Petrolub SE
FPEG_p.DE Bu
y
N/A €40.65 28 Sep 2016
GFT Technologies
GFTG.DE Bu
y
N/A €18.56 28 Sep 2016
Grandvision
GVNV.AS Bu
y
N/A €25.00 28 Sep 2016
Hexpol AB
HPOLb.ST Bu
y
N/A SKr77.20 28 Sep 2016
Hikari Tsushin
9435.T Bu
y
N/A ¥9,430 29 Sep 2016
Hyundai Mobis
012330.KS Bu
y
N/A Won284,000 28 Sep 2016
Man Wah Holdings
1999.HK Bu
y
N/A HK$5.35 28 Sep 2016
Melia Hotels
5, 7
MEL.MC Bu
y
N/A €11.23 28 Sep 2016
Moncler Spa
MONC.MI Bu
y
N/A €15.20 28 Sep 2016
Nine Dragons Paper
2689.HK Bu
y
N/A HK$7.19 28 Sep 2016
Ratos
RATOb.ST Bu
y
N/A SKr40.31 28 Sep 2016
Sartorius AG
SATG_p.DE Neutral N/A €74.16 28 Sep 2016
SCA
SCAb.ST Bu
y
N/A SKr256.50 28 Sep 2016
SEB
SEBF.PA Bu
y
N/A €124.75 28 Sep 2016
Seria
2782.T Bu
y
N/A ¥7,900 29 Sep 2016
SFS Group AG
5
SFSN.S Bu
y
N/A CHF77.35 28 Sep 2016
Trelleborg AB
TRELb.ST Bu
y
N/A SKr165.10 28 Sep 2016
UOL Group
UTOS.SI Bu
y
N/A S$5.64 28 Sep 2016
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock
pricing date
2. UBS AG, its affiliates or subsidiaries has acted as manager /c o-manager in the u nderwriting or placement of
securities of this company/entity or one of its affiliates within the past 12 months.
4. Within the past 12 m onths, UBS AG, its affiliates or su bsidiaries has received compensation for investment banking
services from this company/entity or one of its affiliates.
5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking
services from this company/entity within the next three months.
7. Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products and
services other than investment banking services from this company/entity.
16.
UBS Securities (H
ongKong)Limitedisamarket makerintheHK
-
listed securities of this company.
Family-Controlled Firms 29 September 2016
27
Global Disclaimer
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Family-Controlled Firms 29 September 2016
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Family-Controlled Firms 29 September 2016
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Valuation Method and Risk Statement
The risks of investing in European family-owned companies include specific risks
for each company as well as generic risks such as macroeconomic impact,
sovereign risk in the European union, exposure to emerging markets, financial risk,
etc. On top of that, family-owned companies can face risks related to large
shareholder treatment of minority shareholders, liquidity risks, and risks related to
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Unless otherwise indicated, please refer to the Valuation and Risk sections within
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Family-Controlled Firms 29 September 2016
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Required Disclosures
This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are
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For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical
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finalized on: 29 September 2016 04:27 PM GMT.
Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in
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the specific recommendations or views expressed by that research analyst in the research report.
UBS Investment Research: Global Equity Rating Definitions
12-Month Ratin
g
Definition Covera
g
e
1
IB Services
2
Buy FSR is > 6% above the MRA. 47% 32%
Neutral
FSR is between -6% and 6% of the MRA. 38% 25%
Sell
FSR is > 6% below the MRA. 15% 21%
Short-Term Rating Definition Coverage
3
IB Services
4
Buy
Stock price expected to rise within three months from the time
the rating was assigned because of a specific catalyst or event.
<1% <1%
Sell
Stock price expected to fall within three months from the time
the rating was assigned because of a specific catalyst or event.
<1%
<
1%
Source: UBS. Rating allocations are as of 30 June 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided
within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided
within the past 12 months.
KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend
yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate
plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR
by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually
in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-
term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment
case. Equity Price Targets have an investment horizon of 12 months.
EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive
on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure,
management, performance record, discount; Sell: Negative on factors such as structure, management, performance
record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the
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respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands
as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the
relevant research piece.
Family-Controlled Firms 29 September 2016
32
Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not
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UBS Securities España SV, SA: Bosco Ojeda. UBS Limited: Julie Hudson, CFA. UBS Securities Co. Limited: Edwin
Chen, CFA. UBS Securities Japan Co., Ltd.: Mariko Watanabe.
Company Disclosures
Company Name Reuters 12-month rating Short-term rating Price Price date
Anicom Holdings
8715.T Buy N/A ¥2,497 29 Sep 2016
City Developments Limited
CTDM.SI Buy N/A S$9.11 29 Sep 2016
CK Hutchison Holdings
7, 16
0001.HK Buy N/A HK$99.70 29 Sep 2016
CyberAgent
4751.T Buy N/A ¥2,981 29 Sep 2016
Ebro Foods
EBRO.MC Buy N/A €20.42 28 Sep 2016
Feng Tay
9910.TW Buy N/A NT$142.00 29 Sep 2016
Ferrovial
2, 4
FER.MC Buy N/A €18.31 28 Sep 2016
Fuchs Petrolub SE
FPEG_p.DE Buy N/A €40.65 28 Sep 2016
GFT Technologies
GFTG.DE Buy N/A €18.56 28 Sep 2016
Grandvision
GVNV.AS Buy N/A €25.00 28 Sep 2016
Hexpol AB
HPOLb.ST Buy N/A SKr77.20 28 Sep 2016
Hikari Tsushin
9435.T Buy N/A ¥9,430 29 Sep 2016
Hyundai Mobis
012330.KS Buy N/A Won282,000 29 Sep 2016
Man Wah Holdings
1999.HK Buy N/A HK$5.20 29 Sep 2016
Melia Hotels
5, 7
MEL.MC Buy N/A €11.23 28 Sep 2016
Moncler Spa
MONC.MI Buy N/A €15.20 28 Sep 2016
Nine Dragons Paper
2689.HK Buy N/A HK$7.38 29 Sep 2016
Ratos
RATOb.ST Buy N/A SKr40.31 28 Sep 2016
Sartorius AG
SATG_p.DE Neutral N/A €74.16 28 Sep 2016
SCA
SCAb.ST Buy N/A SKr256.50 28 Sep 2016
SEB
SEBF.PA Buy N/A €124.75 28 Sep 2016
Seria
2782.T Buy N/A ¥7,900 29 Sep 2016
SFS Group AG
5
SFSN.S Buy N/A CHF77.35 28 Sep 2016
Trelleborg AB
TRELb.ST Buy N/A SKr165.10 28 Sep 2016
UOL Group
UTOS.SI Buy N/A S$5.68 29 Sep 2016
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock
pricing date
2.
UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement
of
securiti
es of this company/entity or one of its affiliates within the past 12 months.
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5.
UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment bank
ing
servic
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7.
Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products an
d
servic
es other than investment banking services from this company/entity.
16.
UBS Securities (Hong Kong) Limited is a market maker in the HK-listed securities of this
company.
Family-Controlled Firms 29 September 2016
33
Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set
of disclosure statements associated with the companies discussed in this report, including information on valuation and risk,
please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research.
Family-Controlled Firms 29 September 2016
34
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Family-Controlled Firms 29 September 2016
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