Magnitude & speed
Structurally, the average cost of capital is simply long-term global economic growth plus dividends.
In a world of declining real economic growth (i.e. excluding inflation) (due to an aging population and falling productivity), the real cost of capital will also continue to decrease. Beyond significant market adjustments in 2022 and 2023, valuation multiples will keep rising for long-growth companies, significantly outperforming the broader economy.
For a company, maintaining strong long-term growth strategies (same real growth, higher nominal growth due to slightly higher inflation) in a slowing economic environment increases its growth differential relative to the overall economy. Consequently, this increases its valuation.
Creating this growth surplus may seem challenging, if not impossible, for large European corporations with mature markets and revenues already exceeding a few billion euros. Yet, among the top 100 European companies with revenues above €4 billion, 32% have grown at over 10% annually for the past decade. What is their secret?