Bizval Indicator Report
for June 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 |
|---|---|---|
| 339 | 326 | 4.2% |
Source: Bizval, 30 June 2024.
SME valuations grow 4.2% in the year to June 2024.
The Bizval Indicator has continued its climb over the past 12 months with a positive result rounding out the 2024 financial year.
An Indicator of 339 was recorded in June 2024, up from 326 a year ago. This represented an increase of 4.2% for the year. It was a different story on a quarterly basis though, with the June result of 339 being a 2.7% decline on the March 2024 indicator of 349.
The volume of businesses listed for sale was the strongest influencer of the Bizval Indicator this quarter. Our research indicates there was 7.0% decline in the number of businesses listed for sale in June 2024 when compared to June 2023.
The P/E ratios of small ASX listed companies rose slightly over the quarter, however this move was offset somewhat by a small decrease in our own data of actual valuation multiples.
Business lending rates advertised by the big four banks remained stable.
We continued to value businesses for a broad range of purposes over the quarter, with internal restructures, employee share plans and family law featuring prominently.
General Economic Indicators
| INDICATOR | NOW | 1 YEAR AGO | MOVEMENT |
|---|---|---|---|
| All Ordinaries Index AU (1) | 8,014 | 7,402 | 8.28% |
| RBA Cash Rate AU (2) | 4.35% | 4.10% | 0.25% |
| GDP AU (3) | 1.10% | 2.30% | -1.20% |
| Dow Jones Industrial Average USA (4) | 39,119 | 34,408 | 13.69% |
| Inflation Rate AU (5) | 3.60% | 7.00% | -3.40% |
| Unemployment Rate AU (6) | 4.00% | 3.50% | 0.50% |
(1) Source: Australian Stock Exchange, 28 June 2024
(2) Source: Reserve Bank of Australia, 19 June 2024
(3) Source: Australian Bureau of Statistics, 31 March 2024 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 28 June 2024
(5) Source: Australian Bureau of Statistics, 31 March 2024 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 13 June 2024
GDP
Australian gross domestic product (GDP) rose 0.1% in the March quarter 2024 and 1.1% over the year since March 2023 (seasonally adjusted, chain volume measure), according to figures released by the Australian Bureau of Statistics (ABS).
Katherine Keenan, ABS Head of National Accounts, said: “GDP growth was weak in March, with the economy experiencing its lowest through the year growth since December 2020. GDP per capita fell for the fifth consecutive quarter, falling 0.4% in March and 1.3% through the year.”
Domestic final demand was subdued this quarter, growing 0.2%. The rise in imports of goods and services was offset by an increase in exports and change in inventories. (Source: ABS)
RBA Cash Rate
At its meeting on 18 June 2024, the Board of the RBA decided to leave the cash rate target unchanged at 4.35%.
Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. But the pace of decline has slowed in the most recent data, with inflation still some way above the midpoint of the 2–3% target range. Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. Inflation is easing but has been doing so more slowly than previously expected and it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
(Source: RBA)
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).
Return to Bizval Indicator Report
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.
Return to Bizval Indicator Report
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.
Return to Bizval Indicator Report
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).
Return to Bizval Indicator Report
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.
Return to Bizval Indicator Report
An independent business valuation compiled by a professional can help. Contact BIZVAL or order your business valuation today.