Bizval Indicator Report

for March 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.

Bizval Indicator

NOW 1 YEAR AGO MOVEMENT
355 308 15.4%

Source: Bizval, 31 March 2021.

Exceptional growth continues, Bizval Indicator up 15.4%

Strong growth in the value of SME business values has continued into the first quarter of 2021. The Bizval Indicator has posted a strong gain of 15.4% over the 12-month period to March 2021.

An indicator of 355 was recorded in March 2021, up from 308 a year ago. There was a small easing on quarterly basis though, declining from a peak of 362 in December 2020.

Not surprisingly, the 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 over 35% over the past 12 months. Equity markets continue to push into higher ground in both the ASX All Ordinaries and the Dow Jones over the March 2021 quarter.

Continuing from last quarter’s weakening, the volume of businesses for sale decreased again in the March quarter.

Business lending rates advertised by the big four banks remained constant for the fifth consecutive quarter.

General Economic Indicators

INDICATOR NOW 1 YEAR AGO MOVEMENT
All Ordinaries Index AU (1) 7,017 5,111 37.30%
RBA Cash Rate AU (2) 0.10% 0.25% -0.15%
GDP AU (3) -1.10% 2.20% -3.30%
Dow Jones Industrial Average USA (4) 32,982 21,917 50.49%
Inflation Rate AU (5) 0.90% 1.80% -0.90%
Unemployment Rate AU (6) 5.80% 5.20% 0.60%


(1) Source: Australian Stock Exchange, 31 March 2021
(2) Source: Reserve Bank of Australia, 3 March 2021
(3) Source: Australian Bureau of Statistics, 30 December 2020 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 31 March 2021
(5) Source: Australian Bureau of Statistics, 31 December 2020 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 28 February 2021

Dow Jones

On 17 March 2021 the Dow Jones Industrial Average broke through the 33,000 mark for the first time in its 125-year history. At the time of writing, it was 33,446, continuing this strong growth. It is quite remarkable really, considering the current climate we are living in.

Inflation

The Consumer Price Index (CPI) rose 0.9 per cent in the December 2020 quarter, according to the latest data from the Australian Bureau of Statistics (ABS).

Head of Prices Statistics at the ABS, Michelle Marquardt said: “The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction, continuation and conclusion of a number of government schemes, including childcare fee subsidies and home building grants.”

The most significant price rises in the December quarter were tobacco (+10.9 per cent), following the 12.5 per cent increase in the tobacco excise tax, and childcare (+37.7 per cent), after the unwinding of free childcare, with out-of-pocket expenses now returning to pre-COVID levels

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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