Companies that resisted the allure of cheap debt during the global financial crisis (GFC) are well placed to outperform in the current credit environment, according to Hyperion Asset Management.
These types of business have long-term organic growth options that will allow them to grow revenues, profits and dividends at attractive rates, according to Hyperion chief investment officer Mark Arnold.
"Access to cheap debt in the decades prior to the GFC resulted in an explosion in the earnings growth rates of mediocre companies," said Arnold.
Strong earnings and dividend growth was relatively easy to achieve during the GFC, he said. Companies and consumers were encouraged to gear up and increase spending on consumption and investment, added Arnold.
"Businesses with strong fundamentals didn't stand out, because even the most average companies were achieving strong short-term earnings growth," said Arnold.
With governments, households and investors continuing to deleverage in the current credit environment, companies with sustainable and attractive long-term earnings growth profiles will outperform, he said.
"They are unlikely to need to raise significant equity capital through time, and thus should not suffer material dilution to their long-term [earnings per share] growth rates arising from additional shares being issued," Arnold said.
