CURRENT INDICATOR REPORT ON SME VALUES
for June 2021
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.
|NOW||1 YEAR AGO||MOVEMENT|
Source: Bizval, 30 June 2021.
Bizval Indicator rounds out FY21 on high, up 18%
The Bizval Indicator has continued its strong growth throughout the 2021 financial year.
An indicator of 381 was recorded in June 2021, up from 323 a year ago, and 355 in the March quarter. This was an increase of 7.2% for the June quarter and 18% for the year.
The volume of businesses listed for sale were the strongest influencer of the Bizval Indicator this quarter, with our research showing a significant decline over the period.
The P/E Ratios of small ASX stocks increased by around 27.0% over the past 12 months. This reflects the record highs that equities markets such as the ASX and the All Ordinaries have experienced recently.
Business lending rates advertised by the big four banks remained constant for the sixth consecutive quarter.
Our own data of business valuation multiples reflects the above growth, albeit at a more subdued rate.
General Economic Indicators
|INDICATOR||NOW||1 YEAR AGO||MOVEMENT|
|All Ordinaries Index AU (1)||7,585||6,001||26.39%|
|RBA Cash Rate AU (2)||0.10%||0.25%||-0.15%|
|GDP AU (3)||1.80%||1.40%||0.40%|
|Dow Jones Industrial Average USA (4)||34,502||25,813||33.66%|
|Inflation Rate AU (5)||1.10%||2.20%||-1.10%|
|Unemployment Rate AU (6)||4.90%||7.10%||-2.20%|
(1) Source: Australian Stock Exchange, 30 June 2021
(2) Source: Reserve Bank of Australia, 2 June 2021
(3) Source: Australian Bureau of Statistics, 31 March 2021 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 30 June 2021
(5) Source: Australian Bureau of Statistics, 31 March 2021 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 30 June 2021
Gross Domestic Product (GDP) rose 1.8% this quarter, reflecting the continued easing of COVID-19 restrictions and the recovery in the labour market. The level of economic activity is now 0.8% above December quarter 2019 pre-pandemic levels and has grown 1.1% in through-the-year terms.
The Consumer Price Index (CPI) rose 0.6% in the March 2021 quarter, according to the latest data from the Australian Bureau of Statistics (ABS).
Head of Prices Statistics at the ABS, Michelle Marquardt said: “Higher fuel prices, compared with the low prices seen in 2020, accounted for much of the rise in the March quarter CPI.”
The most significant rises in the March quarter were automotive fuel (+8.7%), medical and hospital services (+1.5%), and pharmaceutical products (+5.3%) due to the resetting of the Medicare and Pharmaceutical Benefits Scheme safety nets. A rise in prices for accessories (+7.3%) reflected high consumer confidence and demand for discretionary items such as jewellery, allowing jewellers to pass through elevated input costs.
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).
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.
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.
We review an average of the multiples used in our business valuations and combine these with multiples from actual business sales (where available).
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.