Bizval Indicator Report

for June 2018

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

3.45 3.22 +7.20%

Source: Bizval, 30 June 2018.

Bizval Multiple Indicator climbing back up.

An indicator of 3.45 was recorded for the June 2018 quarter, an increase from 3.17 for the quarter ending March 2018.

Year-on-year the indicator has increased by 7.2% due mainly to changes in two of the four components comprising the multiple as data on our own valuation earnings multiples remained steady over the year:

  • The number of businesses listed for sale increased
  • Rising Price Earnings (P/E) ratios of small cap listed companies

During the quarter Bizval experienced a steady number of valuations prepared, with an increase in the proportion of valuations for larger businesses.

General Economic Indicators

All Ordinaries Index AU (1) 6,310 5,764 9.47%
RBA Cash Rate AU (2) 1.50% 1.50% 0.00%
GDP AU (3) 3.10% 1.70% 1.40%
Dow Jones Industrial Average USA (4) 24,271 21,350 13.68%
Inflation Rate AU (5) 1.90% 2.10% -0.20%
Unemployment Rate AU (6) 5.40% 5.70% -0.30%

(1) Source: Australian Stock Exchange, 29 June 2018.
(2) Source: Reserve Bank of Australia, 3 July 2018.
(3) Source: Australian Bureau of Statistics, 31 May 2018 (seasonally adjusted, yearly).
(4) Source: New York Stock Exchange, 29 June 2018.
(5) Source: Australian Bureau of Statistics, 31 March 2018 (headline, yearly).
(6) Source: Australian Bureau of Statistics, 31 May 2018.

The All Ordinaries Index (Australian Stock Exchange)

The ASX All Ordinaries Index gained ground in the June 2018 quarter and was 9.47% higher than in June 2017 at 5,904 points. The benchmark accounts for 88% (March 2017) of the Australian equity market containing the 500 largest ASX listed companies by market capitalisation.

Gross Domestic Product (Australia)

The Australian economy grew by 1.0% in seasonally adjusted chain volume terms in the March quarter with exports of goods and services contributed 0.5 percentage points to GDP growth.

Unemployment Rate

Employment increased 12,000 to 12,518,300 with full-time employment decreasing by 20,600 to 8,521,400 and part-time employment increased 32,600 to 3,996,900. Unemployment decreased 26,800 to 714,600 with the number of unemployed persons looking for full-time work decreasing 11,200 to 494,300 and the number of unemployed persons only looking for part-time work decreased 15,600 to 220,300 so the unemployment rate decreased by 0.2 pts to 5.4%. Our participation rate decreased by 0.2 pts to 65.5%.

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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