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Australia’s least popular brands

At the end of 2012, Australia’s biggest consumer review website, Product Review, revealed the least popular Australian brands according to reviewers. Although the popularity of a brand does not necessarily determine how profitable it is, brand unpopularity can indicate that the “intangibles” section of a company’s balance sheet might need to be written down. I eagerly anticipate the 2013 results.

The worst services brand in 2012, according to Product Review, was Star Track Express. Star Track Express is a road freight company that, for most of 2012, was owned by Australia Post and Qantas (ASX: QAN). Qantas had bought the company in 2003 for $375 million, with a view to profiting from the explosion in package delivery ignited by the growth in Internet retail.

Qantas sold its stake to Australia Post in October 2012 for a profit of about $30 million. Qantas may have done well to divest itself of a declining brand, since the increased demand for parcel deliveries is sure to incite competition in the long term. However, growing demand means Star Track profits may continue to flow.

Perhaps the best example of a weak brand making profits for its owner is Dodo. The ISP was the bottom-rated ISP in 2012 according to site. Dodo was recently purchased by the fast-growing telecommunications company, M2 Telecommunications (ASX: MTU) for $157 million in cash and 10.4 million in shares. M2’s shares currently trade for above $6.10, so the total consideration was over $210 million, using today’s prices.

M2 is a solid business, and although it is straddled with more debt than I think is ideal, the company is likely to grow strongly in the coming years. It may not be much of a worry that Dodo has a poor reputation, because it remains one of the cheapest ISPs. It’s also worth noting that Canstar Blue currently awards Dodo three stars for “Overall satisfaction,” for its bundled plan, below iPrimus (also owned by M2), but on equal footing with Telstra and Vodafone.

Finally, the second-bottom-rated brand in the services category in 2012 was Origin Energy (ASX: ORG). It appears that Origin continues to damage its reputation as a retailer. A recent report on “sneaky power price tactics” in the Courier Mail quoted an Origin spokeswoman as admitting, “we need to do a better job of reminding customers when their discount period is coming to an end.” The Daily Advertiser also reported on customer dissatisfaction just two days ago, after residents wrote to the paper regarding their “Origin Energy utility woes.”

Foolish takeaway

Customer dissatisfaction does not necessarily destroy the investment thesis for either Origin Energy or M2 Telecommunications. However, sustained brand damage combined with weaker sales is an early indication that the company may eventually write down the value of a brand. It can pay for investors to monitor the brands owned by their companies. Just as an acquired brand can be overvalued on the balance sheet, a popular brand can often be far more valuable than a company’s accounts would suggest.

Do you understand the value of a popular brand?

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Motley Fool contributor Claude Walker does not own shares in any of the companies mentioned in this article.

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