TSR helps you keep score

Growth in share prices is often used as a proxy to the assess a company's returns to its shareholders, but this can be misleading, as investors receive returns in many other ways, including dividends, simple capital transactions such as rights issues, and complex capital changes such as share restructuring.

A single, composite measure is required to combine them, and this is the purpose of the total shareholder return (TSR). Listed Thai companies are compared using this measure, based on basic financial data provided by Datastream and corroborated through the SET. The periods of the one-, three-, five- and 10-year TSR calculations are from December 2006, 2004, 2002 and 1997, to December 2007, respectively.

TSR is defined as the "annualised total return to shareholders from maintaining their investment in a stock over a given period." Maintaining the investment means not taking any net cash out; immediately reinvesting all cash receipts (such as dividends); participating in all capital transactions (such as rights issues) and selling stock as required, so as not to contribute any new capital.

Let's look at the TSR for Banpu (BANPU) for the last 10 years. At Dec 31, 1997 the company had a share price of 130 baht. After a number of rights issues and share splits, the price was at 472 baht as of Dec 31, 2007. If we had invested 100 baht in BANPU since December 1997 and reinvested all dividends, the investment would have a value of 1,682 baht. This value creation of 1,582 baht comes from both share price appreciation and dividend reinvestment. Therefore, the annualised total shareholder return is 32.6% over the 10-year period.

However, companies' risk profiles must also be considered when comparing their relative performance. Naturally, investors expect higher returns from firms with higher levels of risk. For example, expectations will differ for returns from a mobile phone company compared with a food product exporter. The Scorecard reflects this by grouping companies in the sectors defined by the SET.

TSR queries: Khun Manita: manita@pyi.co.th or contact PYI's office at 0-2636-6333