Bizval Indicator Report

for December 2023

We like to think of the Bizval Indicator as a ‘barometer’ of SME valuation multiples providing a perspective of the value of Australian small-to-medium sized businesses.

Unlike listed companies, the sale prices of SME’s are not readily available. The Bizval Indicator helps monitor movements in the drivers of SME values.

The Bizval Indicator is derived from key drivers of SME values and is then reviewed in the context of a basket of general economic indicators.

Bizval Indicator

NOW 1 YEAR AGO MOVEMENT
327 320 2.0%

Source: Bizval, 31 December 2023.

Marginal gain for the Bizval Indicator in December

The Bizval Indicator posted a marginal gain of 2.0% in the December 2023 quarter on a year-to-year basis.

Traditionally, the December quarter is one of decline with most of our key indicators in the red, so it was pleasing to see an overall positive result on this occasion.

On a quarterly basis, the Bizval Indicator rose by 0.7% from a mark of 325 recorded in September 2023.

Business finance rates continue to climb higher placing downward pressure on the indicator. Actual valuation multiples from our data also showed a small decline over the quarter. These factors were offset by strong price/earnings ratios of ASX small cap. stocks.

We finished the year with a busy quarter with family law, partner buy-outs and share issues being the most common purposes for obtaining a business valuation.

Chart by Visualizer

General Economic Indicators

INDICATOR NOW 1 YEAR AGO MOVEMENT
All Ordinaries Index AU (1) 7,830 7,222 8.42%
RBA Cash Rate AU (2) 4.35% 3.10% 1.25%
GDP AU (3) 2.10% 5.90% -3.80%
Dow Jones Industrial Average USA (4) 37,690 33,147 13.70%
Inflation Rate AU (5) 5.40% 7.30% -1.90%
Unemployment Rate AU (6) 3.80% 3.50% 0.30%


(1) Source: Australian Stock Exchange, 29 December 2023
(2) Source: Reserve Bank of Australia, 6 December 2023
(3) Source: Australian Bureau of Statistics, 30 September 2023 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 29 December 2023
(5) Source: Australian Bureau of Statistics, 30 September 2023 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 30 November 2023

Gross Domestic Product (GDP)

The Australian economy grew 0.2% in the September quarter 2023.

Gross Domestic Product (GDP) rose 0.2%, driven by increased government consumption and capital investment during the quarter. Growth in both household consumption and GDP over 2023 has slowed due to sustained cost of living pressures and higher interest rates.

Through the year, household consumption (+0.4%) slowed to its lowest rate since the COVID-19 impacted March 2021 quarter. The slowdown in demand reflected the ongoing effects of higher mortgage interest rates and sustained cost of living pressures on household budgets.

(Source: ABS)

Unemployment Rate

The unemployment rate rose by 0.1 percentage point to 3.9% in November (seasonally adjusted), up from a revised 3.8% in October, according to data released by the Australian Bureau of Statistics (ABS).

Bjorn Jarvis, ABS Head of Labour Statistics, said: “The combination of strong growth in both employment and unemployment in November saw the employment-to-population ratio return to a record high of 64.6% and the participation rate reach a new high of 67.2%.

“We have continued to see employment growth keeping pace with high population growth through 2023. The employment-to-population ratio has been high for a long time now, between 64.4% and 64.6% since February 2023, and between 64.3% and 64.6% for the past 18 months.

(Source: ABS)

Drivers of SME Values

The Bizval Indicator is calculated using a proprietary formula. We research, monitor and evaluate the following components to arrive at the result.

ASX Small Cap P/E Ratios

Small Capitalisation companies have greater similarities to private SMEs than large cap stocks. Bizval reviews the mean and median price earnings (P/E) ratios of companies with market capitalization of between $20 million and $200 million. We adjust these figures to align them more closely with private SMEs by reducing the P/E ratios to account for differences in size, key-person dependence and ability to easily buy or sell (liquidity).

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Business Loan Interest Rates

Bizval monitors the advertised interest rates of Australian major banks for business loans. Using an average of these rates we then add a risk margin (commonly added to the base rate by banks when lending to small businesses). We also add a hypothetical margin for the SME proprietor to reflect their return on investment. This interest rate is then converted to a multiple.

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Businesses for Sale

Bizval undertakes a review of the volume of businesses listed for sale across Australia, taking into account any movements in this number.

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Bizval Multiples

We review an average of the multiples used in our business valuations and combine these with multiples from actual business sales (where available).

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In addition to the four drivers of SME values, the Bizval Indicator is evaluated in the context of six national / international General Economic Indicators.

The All Ordinaries Index (Australian Stock Exchange)

The ‘All Ords’ is the oldest index of shares in Australia, dating from 1980. It is derived from the share prices of 500 of the largest companies listed on the Australian Securities Exchange (ASX).

Reserve Bank of Australia Cash Rate

The RBA sets the target ‘cash rate’, which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations.

Gross Domestic Product (Australia)

GDP is a monetary measure of the market value of all final goods and services produced over a defined period of time.

Dow Jones Industrial Average (USA)

The ‘Dow’ is a US stock market price-weighted index monitoring the share trading performance of 30 large, publicly owned American-based companies.

Inflation Rate (Australia)

The Consumer Price Index (CPI) measures the average change over time in the prices paid by Australian households for a fixed basket of goods and services.

Unemployment Rate (Australia)

The proportion of unemployed persons in the labor force is seasonally adjusted to take account of changes in demand for agricultural labor, students seeking employment after completing education, and so on.

An independent business valuation compiled by a professional can help. Contact BIZVAL or order your business valuation today.

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