Bizval Indicator Report
for March 2024
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 |
|---|---|---|
| 349 | 311 | 12.2% |
Source: Bizval, 31 March 2024.
Bizval Indicator starts 2024 on a high, up 12%.
The Bizval Indicator has maintained its climb over the past four quarters with a strong result in the quarter ending March 2024.
An Indicator of 349 was recorded in, up from 311 a year ago, and 327 in the December 2023 quarter. This was an increase of 6.7% for the March quarter and 12.2% for the year.
Price/Earnings ratios of small ASX listed companies were the strongest influencer of the Bizval Indicator this quarter. The P/E Ratios alone increased by a whopping 31.0% over the past 12 months.
The volume of businesses for sale increased over the quarter, however this move was offset somewhat by a small increase in our own data of actual valuation multiples.
Business lending rates advertised by the big four banks remained stable.
Here at Bizval, during the quarter we valued businesses from a broad range of industries with Construction, Professional Services, IT and Media being the most popular sectors.
General Economic Indicators
| INDICATOR | NOW | 1 YEAR AGO | MOVEMENT |
|---|---|---|---|
| All Ordinaries Index AU (1) | 8,154 | 7,373 | 10.59% |
| RBA Cash Rate AU (2) | 4.35% | 3.60% | 0.75% |
| GDP AU (3) | 1.50% | 2.70% | -1.20% |
| Dow Jones Industrial Average USA (4) | 39,807 | 33,274 | 19.63% |
| Inflation Rate AU (5) | 4.10% | 7.80% | -3.70% |
| Unemployment Rate AU (6) | 3.80% | 3.50% | 0.30% |
(1) Source: Australian Stock Exchange, 28 March 2024
(2) Source: Reserve Bank of Australia, 20 March 2024
(3) Source: Australian Bureau of Statistics, 31 December 2023 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 28 March 2024
(5) Source: Australian Bureau of Statistics, 31 December 2023 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 29 February 2024
Inflation
The Consumer Price Index (CPI) rose 0.6% in the December 2023 quarter and 4.1% annually, according to the latest data from the Australian Bureau of Statistics (ABS).
Michelle Marquardt, ABS Head of Prices Statistics, said: “The CPI rose 0.6% in the December quarter, lower than the 1.2% rise in the September 2023 quarter. This was the smallest quarterly rise since the March 2021 quarter.”
“While prices continued to rise for most goods and services, annual CPI inflation has fallen from a peak of 7.8% in December 2022, to 4.1% in December 2023.” (Source: ABS)
Unemployment Rate
The seasonally adjusted unemployment rate fell by 0.4 percentage points to 3.7% in February, according to data released by the Australian Bureau of Statistics (ABS).
The increase in employment in February followed a weaker-than-usual outcome in December (-62,000), and a modest increase in January (15,000). This equates to 70,000 more employed people in February than there were in November and a growth rate consistent with the underlying trend.
The large increase in employment in February followed larger-than-usual numbers of people in December and January who had a job that they were waiting to start or to return to. This translated into a larger-than-usual flow of people into employment in February and even more so than February last year. (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.
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An independent business valuation compiled by a professional can help. Contact BIZVAL or order your business valuation today.