3
What’s the report about?
We update work from our previous disruption reports: Disruption: Welcome to the jungle and Appetite for Disruption. We review the
developments of the most disruptive forces globally (a ‘top-down’ approach) and together with our analysts assess which companies across their entire
coverage universe of c2,650 stocks carry the most and least risk from disruption. We use HOLT to assess where this risk is mispriced. In conjunction
with this report, we also publish our Disruption Primer, which summarises the key disruptive forces for more than 25 sectors in Europe.
What’s new in this report
Disruptive risk is on the rise: Our analysts’ responses suggest that risk from disruption is rising for the 2
nd
consecutive year.
Sectors most at risk
are Energy, Autos and Pharma; however, sectors that have moved up significantly in our risk ranking are Banks, Software
and Tech Hardware.
Sectors least at risk
are H&P Goods, Real Estate and Utilities. Sectors with a noticeable decline in perceived risk include
Diversified Financials.
Disruptors are at risk, too: Of our structural disruptive growth themes, only Automation scores below average on disruptive risk. Within
consumer connectivity, 50% of the B2C online companies score above average on risk (including Amazon, Zalando, eBay and Alphabet). In other
words, our analysts believe that the disruptors are at risk from being disrupted as well. These disruptors are listed on
page 55.
New risks: trade wars and tech-related regulation: We highlight companies in Europe and China negatively exposed to the former
(
pages 34-35
) and show that for big tech companies (Amazon, Facebook and Alphabet), downside risk from regulation may be less than
expected if we assume that regulation would force CFROIs down to the respective cost of capital.
Young and disruptive does not always equal outperformance as indicated by the fact that IPOs in the US underperformed the broader
equity market during their first 3 years of trading in 27 of the past 38 years. For investors seeking exposure to proven stocks with longevity, we
highlight ‘Centenaries’ with above-average quality and momentum that outperformed MSCI AC World on a 1-, 3- and 5-year basis (
page 18
).
Our framework for mapping risk and mispricing:
Our analysts’ views: We asked our analysts to score each of their companies from 1 (=minimal risk) to 3 (=maximum risk) for the risk that they
face from Regulation, Competition and Technological Innovation. This gives a cumulative score of 3 (minimum risk) to 9 (maximum risk).
Using HOLT to identify mispricing: Combining our analyst ranking with a HOLT-based ‘what’s priced in’ approach allows us to assess where
risk is mispriced. This suggests that on a sector level, the market tends to be too optimistic for sectors with the lowest disruptive risk scores.
Future cash flow return expectations appear too negative on the other hand for the sectors with greatest disruptive risk.
Stock screens provided in this report include Cheap & Undisruptables and Expensive & Disruptables (
page 63
).
Executive summary
