EverEdge Intangible Benchmark Index™

The Intangible Asset Specialists

 

New Report Highlights the Importance of Intangible Assets as Growth Drivers

EverEdge has released its inaugural EverEdge Intangible Benchmark Index™ (EIBI), which shows intangible assets now account for 85% of enterprise value for companies in the S&P 500.

The EIBI™ tracks the evolution of intangible assets within four major stock indices – S&P 500, S&P ASX 200, FTSE ST All-Share Index (FSTAS) and S&P NZX All Index - at both the index and underlying Global Industry Classification Standard (GICS) sector levels. It is the first report to undertake this analysis for these Singapore, Australia, and New Zealand indices.

BI_Enterprise Value Trend 2005 – 2020_TEST

To date, existing research has focused on the rise of intangible assets as a proportion of market capitalisation. However, focusing solely on intangible assets as a proportion of market capitalisation risks conflating operating performance and financing choices.

For instance, a large US airline currently has intangible assets amounting to 200% of market capitalisation. This is counterintuitive since an airline clearly has tangible assets. At an aggregate level this means that, in principle, an index could have an intangible asset to market ratio exceeding 100%.

To neutralise the effect of financing choices, EverEdge has deliberately expressed intangible assets as a proportion of a company’s enterprise value. This provides a more robust expression of the importance of intangible assets for company valuations and deliberately and perceptibly neutralises the effect of financing choices, allowing for better analysis of a company’s strategic position and management’s build-up of intangible assets. A full explanation of why this is so important is included within the report. 

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Download your copy of the full research report.

Research shares data and insights into how:

  • Intangible assets as a proportion of enterprise value have evolved across the S&P 500, S&P ASX 200, FTSE ST All-Share Index (FSTAS) and S&P NZX All Index.
  • Over the last twenty years, capital has (consciously or unconsciously) actively and disproportionately rewarded intangible asset-rich companies.
  • Companies that can harness the inherent scalability and differentiation of intangible assets to build sound, scalable business models, will generate outsized performance.

Benchmarking Global Indices

EverEdge’s research looks at the evolution of intangible assets as a proportion of enterprise value over a 20-year period at both an index and sector level, across four financial indices.

A key takeout for companies and investors alike is how, over the twenty years of the study, capital has (consciously or unconsciously) actively and disproportionately rewarded intangible asset-rich companies. It has done so because, other things being equal, companies that can harness the inherent scalability, transferability, and differentiation of intangible assets to sound, scalable business models will generate outsized performance.

BI_Index Analysis by Sector 2000 – 2020

Commenting on the report

Intangible Assets (IA) are becoming increasingly important drivers of enterprise value. Yet, many enterprises may not be fully aware of the value that IA can bring. The inaugural EverEdge Intangible Benchmark Index (EIBI) is a resource that can be used by not just enterprises but also for financiers as they are key enablers in the IA value creation chain. With greater awareness and appreciation of the value of IA, stakeholders will be able to make more informed decisions in commercialising IA.

Kok Kitt-Wai, Acting Managing Director

IPOS International

This report reinforces how understanding intangible assets can help investors to better identify the source of a company’s value, measure and quantify this value and to assess how long such value will persist. As the importance of intangible assets grows, investors that understand these assets will be in a better position to more accurately identify both current and future risks and opportunities.

David Gerald, Founder, President & CEO

Securities Investors’ Association (Singapore) (SIAS)

Historically physical assets have been the main driver behind the value; however, we now live in an age where digital or intangible assets have proven to be more valuable. Banks generally lend money on cash flow and assets, never taking into consideration the intangible asset that might have less risk or could be sold more than once should things go wrong. Companies that truly understand their digital footprint their intangible assets have thrived over the last few decades. 

 

With the world in lockdown companies will need to be very clear on their digital narrative and how the intangible part of the business adds value, how to leverage it and commercialize it. A great example of this is NFTs, you only need to look at Open Sea to see the huge demand for art in a digital context. The world is changing its time to look at things differently.”

James Brown, General Manager

FinTechNZ

Singapore continues to attract capital flows as it is regarded as a safe, stable and “rules of law” based jurisdiction. However, this also means that investors and high net worth individuals are indeed seeking the ‘safer’ options and may not be prepared to take risks with their Singapore-placed funds. Hence the majority of these funds may not be deployed in entities which have a predominantly intangible asset based-balance sheet. This, coupled with the lower valuations for intangible asset-based entities in Singapore, will lead to difficulties in attracting potential listings for such entities on the SGX.

 

The recent launch of the SPACS regime by the SGX may provide some impetus and boost for this sector but its early days still. Leaving aside listings on the SGX, it is still very encouraging to note that more funds are being invested in several unlisted intangible assets-based entities in Singapore. The trend of increasing investments into intangible asset-based companies in Singapore will most likely continue into 2022, despite of (and possibly due to) the Covid-19 pandemic.

S, Sivanesan, Senior Partner & Head of Corporate Practice Group,

Dentons Rodyk

Forty years ago, banks and other financial institutions could largely ignore intangible assets. Not so today. In a truly digitised economy, it is now essential for capital providers to understand both the value of intangibles and the criteria by which to lend against them. This is no short-term trend: as capital flows increase and intangibles continue to represent an ever greater share of company value understanding and managing intangible assets is now mission critical.

Chandu Bhindi, Treasurer

ASB Bank

In my mind, what regulatory bodies refer to as non-financial risks are the those associated with intangible assets. With the increasing dominance of intangible assets as driver of enterprise value, it is becoming more important that the full spectrum of non-financial risks are properly measured, mitigated and monitored by organisations.

Elaine Collins

Non-Executive Director FAICD / Actuary FIAA / Professor UNSW

This work is timely in view of enterprise value, including intangible assets, being central to the concept of ‘sustainability’ being embraced by the IFRS Foundation and IOSCO as they work to create the new International Sustainability Reporting Standards Board (ISSB). The initial focus is on a climate reporting standard, with further work on broader ESG matters.

 

It is essential that the ISSB also focuses from Day 1 on intangibles as a major component of enterprise value. This work focused on intangibles and enterprise value is closely aligned to the where the foundation of corporate reporting is moving which will assist investors with their work on how they perceive and place value on intangible assets.

Professor Peter Carey, Director – Research & Michael Bray, Professor of Practice (Integrated Reporting)

Deakin University Integrated Reporting Centre

We welcome this report that highlights the importance of intangible assets as a key contributor to economic growth. As major value creators for many firms and industries, intangibles are driving growth in market value for technology companies across the globe. Intellectual property rights are critical tools for protecting many of these intangibles – notably for technology start-ups that trade their IP with large incumbents.

 

This report invites consideration of the importance of IP rights to competing in tech, alongside other sectors.

Michael Schwager, Director General

IP Australia

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