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Our latest perspective - What's behind under-performing listed companies?

Outperform through the downturn

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Quantified Strategy

Decreased uncertainty, improved decisions

Global Advisors is a leader in defining quantified strategies, decreasing uncertainty, improving decisions and achieving measureable results.

We specialise in providing highly-analytical data-driven recommendations in the face of significant uncertainty.

We utilise advanced predictive analytics to build robust strategies and enable our clients to make calculated decisions.

We support implementation of adaptive capability and capacity.

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Global Advisors’ Thoughts: Outperforming through the downturn AND the cost of ignoring full potential

Global Advisors’ Thoughts: Outperforming through the downturn AND the cost of ignoring full potential

Press drew attention last year to a slew of JSE-listed companies whose share prices had collapsed over the past few years. Some were previous investor darlings. Analysis pointed to a toxic combination of decreasing earnings growth and increased leverage. While this might be a warning to investors of a company in trouble, what fundamentals drive this combination?

In our analysis, company expansion driven by the need to compensate for poor performance in their core business is a typical driver of exactly this outcome.

This article was written in January 2020 but publication was delayed due to the outbreak of Covid-19. Five months after South Africa’s first case, we update our analysis and show that core-based companies outperformed diverse peers by 29% over the period.

Management should always seek to reach full potential in their core business. Attempts to expand should be to a clearly logical set of adjacencies to which they can apply their capabilities using a repeatable business model.

In the article “Steinhoff, Tongaat, Omnia… Here’s the dead giveaway that you should have avoided these companies, says an asset manager,” (Business Insider SA, Jun 11, 2019) Helena Wasserman lists a number of Johannesburg Stock Exchange (JSE) listed shares that have plummeted in recent years.

In many cases these companies’ corresponding sectors have been declining. However, in most of the sectors there is at least one company that has outperformed the rest. What is it about these outperformers that distinguishes them from the rest?

The outperformers have typically shown strong financial performance – be that Growth, ROE, ROA, RONA or Asset Turnover – and varying degrees of leverage. However, performance against these metrics is by no means consistent – see our analysis.

What is consistent is that the outperformers all show clearly delineated core businesses and ongoing growth towards full potential in these businesses alongside growth into clear adjacencies that protect, enhance and leverage the core. In some cases, the core may have been or is currently being redefined, typically through gradual, step-wise extension along logical adjacencies. Redefinition is particularly important in light of the digital transformation seen in many industries. The outperformers are very seldom diversified across unrelated business segments – although isolated examples such as Bidvest clearly exist in other sectors.

Analysis of the over- and underperformers in the sectors highlighted in the article shows that those following a clear core-based strategy have typically outperformed peers through the initial months of the downturn caused by the Covid-19 outbreak.

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Strategy Tools

PODCAST: Effective Transfer Pricing

PODCAST: Effective Transfer Pricing

Our Spotify podcast discusses how to get transfer pricing right.

We discuss effective transfer pricing within organizations, highlighting the prevalent challenges and proposing solutions. The core issue is that poorly implemented internal pricing leads to suboptimal economic decisions, resource allocation problems, and interdepartmental conflict. The hosts advocate for market-based pricing over cost recovery, emphasizing the importance of clear price signals for efficient resource allocation and accurate decision-making. They stress the need for service level agreements, fair cost allocation, and a comprehensive process to manage the political and emotional aspects of internal pricing, ultimately aiming for improved organizational performance and profitability. The podcast includes case studies illustrating successful implementations and the authors’ expertise in this field.

Read more from the original article.

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Fast Facts

Fast Fact: Great returns aren’t enough

Fast Fact: Great returns aren’t enough

Key insights

It’s not enough to just have great returns – top-line growth is just as critical.

In fact, S&P 500 investors rewarded high-growth companies more than high-ROIC companies over the past decade.

While the distinction was less clear on the JSE, what is clear is that getting a balance of growth and returns is critical.

Strong and consistent ROIC or RONA performers provide investors with a steady flow of discounted cash flows – without growth effectively a fixed-income instrument.

Improvements in ROIC through margin improvements, efficiencies and working-capital optimisation provide point-in-time uplifts to share price.

Top-line growth presents a compounding mechanism – ROIC (and improvements) are compounded each year leading to on-going increases in share price.

However, without acceptable levels of ROIC, the benefits of compounding will be subdued and share price appreciation will be depressed – and when ROIC is below WACC value will be destroyed.

Maintaining high levels of growth is not as sustainable as maintaining high levels of ROIC – while both typically decline as industries mature, growth is usually more affected.

Getting the right balance between ROIC and growth is critical to optimising shareholder value.

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Selected News

Quote: Sundar Pichai – CEO of Google and Alphabet

Quote: Sundar Pichai – CEO of Google and Alphabet

“We’re in a new phase of the AI platform shift. Where decades of research are now becoming reality for people, businesses and communities all over the world.” – Sundar Pichai – CEO of Google and Alphabet

In a defining moment at Google I/O 2025, Sundar Pichai, CEO of Google and Alphabet, articulated a transformative vision: “We’re in a new phase of the AI platform shift. Where decades of research are now becoming reality for people, businesses, and communities all over the world.” This statement, delivered during his keynote address, encapsulates both Google’s trajectory under Pichai’s leadership and the seismic technological advancements unveiled at the event. To fully grasp the significance of this declaration, one must examine Pichai’s journey, the strategic context of Google’s AI evolution, and the groundbreaking tools announced at I/O 2025.


Sundar Pichai: From Chennai to Silicon Valley

Early Life and Academic Foundations

Born in Madurai, Tamil Nadu, in 1972, Pichai Sundararajan grew up in a middle-class household in Chennai. His father, Regunatha Pichai, worked as an electrical engineer at General Electric Company (GEC), while his mother, Lakshmi, was a stenographer before becoming a homemaker. The family lived in a modest two-room apartment, where Pichai’s curiosity about technology was nurtured by his father’s discussions about engineering and his mother’s emphasis on education.

Pichai attended Jawahar Vidyalaya and later Vana Vani Matriculation Higher Secondary School, where his academic prowess and fascination with electronics became evident. Classmates recall his ability to memorize phone numbers effortlessly and his habit of disassembling household gadgets to understand their mechanics. These early experiences laid the groundwork for his technical mindset.

After excelling in his Class XII exams, Pichai earned admission to the Indian Institute of Technology (IIT) Kharagpur, where he studied metallurgical engineering. Despite the unconventional choice of discipline, he graduated at the top of his class, earning a Silver Medal for academic excellence. His professors, recognizing his potential, encouraged him to pursue graduate studies abroad. Pichai subsequently earned a Master’s degree in materials science from Stanford University and an MBA from the Wharton School of the University of Pennsylvania, where he was named a Siebel Scholar and Palmer Scholar.

Career at Google: Architect of the Modern Web

Pichai joined Google in 2004, a pivotal year marked by the launch of Gmail. His early contributions included leading the development of the Google Toolbar and Chrome browser, which emerged as critical tools in countering Microsoft’s dominance with Internet Explorer. Pichai’s strategic foresight was evident in his advocacy for ChromeOS, unveiled in 2009, and the Chromebook, which redefined affordable computing.

By 2013, Pichai’s responsibilities expanded to include Android, Google’s mobile operating system. Under his leadership, Android grew to power over 3 billion devices globally, while initiatives like Google Drive, Maps, and Workspace became ubiquitous productivity tools. His ascent continued in 2015 when he was named CEO of Google, and later, in 2019, CEO of Alphabet, overseeing a portfolio spanning AI, healthcare, and autonomous technologies.


The AI Platform Shift: Context of the 2025 Keynote

From Research to Reality

Pichai’s quote at Google I/O 2025 reflects a strategic inflection point. For years, Google’s AI advancements—from DeepMind’s AlphaGo to the Transformer architecture—existed primarily in research papers and controlled demos. The 2025 keynote, however, emphasized operationalizing AI at scale, transforming theoretical breakthroughs into tools that reshape industries and daily life.

Key Announcements at Google I/O 2025

The event showcased over 20 AI-driven innovations, anchored by several landmark releases:

1. Gemini 2.5 Pro and Flash: The Intelligence Engine

Google’s flagship AI model, Gemini 2.5 Pro, introduced Deep Think—a reasoning framework that evaluates multiple hypotheses before generating responses. Benchmarks showed a 40% improvement in solving complex mathematical and coding problems compared to previous models. Meanwhile, Gemini 2.5 Flash optimized efficiency, reducing token usage by 30% while maintaining accuracy, enabling cost-effective deployment in customer service and logistics.

2. TPU Ironwood: Powering the AI Infrastructure

The seventh-generation Tensor Processing Unit (TPU), codenamed Ironwood, delivered a 10x performance leap over its predecessor. With 42.5 exaflops per pod, Ironwood became the backbone for training and inferencing Gemini models, reducing latency in applications like real-time speech translation and 3D rendering.

3. Google Beam: Redefining Human Connection

Evolving from Project Starline, Google Beam combined AI with lightfield displays to create immersive 3D video calls. Using six cameras and a neural video model, Beam rendered participants in real-time with millimeter-precise head tracking, aiming to eliminate the “flatness” of traditional video conferencing.

4. Veo 3 and Flow: Democratizing Creativity

Veo 3, Google’s advanced video generation model, enabled filmmakers to produce high-fidelity scenes using natural language prompts. Paired with Flow—a collaborative AI filmmaking suite—the tools allowed creators to edit footage, generate CGI, and score soundtracks through multimodal inputs.

5. AI Mode for Search: The Next-Generation Query Engine

Expanding on 2024’s AI Overviews, AI Mode reimagined search as a dynamic, multi-step reasoning process. By fanning out queries across specialized sub-models, it provided nuanced answers to complex questions like “Plan a sustainable wedding under $5,000” or “Compare immunotherapy options for Stage 3 melanoma”.

6. Project Astra: Toward a Universal AI Assistant

In a preview of future ambitions, Project Astra demonstrated an AI agent capable of understanding real-world contexts through smartphone cameras. It could troubleshoot broken appliances, analyze lab results, or navigate public transit systems—hinting at a future where AI serves as an omnipresent collaborator.


The Significance of the “AI Platform Shift”

A Convergence of Capabilities

Pichai’s declaration underscores how Google’s investments in AI infrastructure, models, and applications have reached critical mass. The integration of Gemini into products like Workspace, Android, and Cloud—coupled with hardware like TPU Ironwood—creates a flywheel effect: better models attract more users, whose interactions refine the models further.

Ethical and Economic Implications

While celebrating progress, Pichai acknowledged challenges. The shift toward agentic AI—systems that “take action” autonomously—raises questions about privacy, bias, and job displacement. Google’s partnership with the Institut Curie for AI-driven cancer detection and wildfire prediction tools exemplify efforts to align AI with societal benefit. Economically, the $75 billion invested in AI data centers signals Google’s commitment to leading the global race, though concerns about energy consumption and market consolidation persist.


Conclusion: Leadership in the Age of AI

Sundar Pichai’s journey—from a Chennai classroom to steering Alphabet’s AI ambitions—mirrors the trajectory of modern computing. His emphasis on making AI “helpful for everyone” reflects a philosophy rooted in accessibility and utility, principles evident in Google’s 2025 releases. As decades of research materialize into tools like Gemini and Beam, the challenge lies in ensuring these technologies empower rather than exclude—a mission that will define Pichai’s legacy and the next chapter of the AI era.

The Google I/O 2025 keynote did not merely showcase new products; it marked the culmination of a vision Pichai has championed since his early days at Google: technology that disappears into the fabric of daily life, enhancing human potential without demanding attention. In this new phase of the platform shift, that vision is closer than ever to reality.

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