Bizval Indicator Report
for December 2019We 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, 31 December 2019.
Business Valuations up 6.9% for the year.
The latest Bizval Indicator figures suggests business valuation multiples have increased by 6.9% over the past year. An Indicator of 326 was recorded in December 2019, an increase from 305 recorded in December 2018.
While P/E ratios of small listed companies were the main force driving up the Bizval Indicator, data on our own valuation earnings multiples along with lowering of business interest have also contributed to the year-on-year increase.
Our research indicates price/earnings ratios of small ASX listed companies increased by 4% in the December quarter, taking the yearly increase to almost 18%.
Throughout the December 2019 quarter, our valuations have covered a wide range of industries with Professional Services and Start-Ups featuring most prominently.
General Economic Indicators
|INDICATOR||NOW||1 YEAR AGO||MOVEMENT|
|All Ordinaries Index AU (1)||6,802||5,716||19%|
|RBA Cash Rate AU (2)||0.75%||1.50%||-0.75%|
|GDP AU (3)||1.70%||2.80%||-1.10%|
|Dow Jones Industrial Average USA (4)||28,584||23,062||23.94%|
|Inflation Rate AU (5)||1.70%||1.90%||-0.50%|
|Unemployment Rate AU (6)||5.20%||4.90%||0.30%|
(2) Source: Reserve Bank of Australia, 4 December 2019
(3) Source: Australian Bureau of Statistics, 30 September 2019 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 31 December 2019
(5) Source: Australian Bureau of Statistics, 30 September 2019 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 30 November 2019
Dow Jones Industrial Average
The Dow Jones finished the year with a bang, surging almost 24% over the past year to close at its highest level on record at 28,584. The biggest gains came from Apple, Microsoft, Visa and Proctor & Gamble.
Gross Domestic Product
The Australian economy grew 0.4 per cent in seasonally adjusted terms in the September quarter 2019 and 1.7 per cent through the year, according to figures released by the Australian Bureau of Statistics on 4 December 2019.
Chief Economist for the ABS, Bruce Hockman, said: “The economy has continued to grow, however the rate of growth remains well below the long run average.”
Australia’s trend unemployment rate decreased by less than 0.1 percentage points to 5.2 per cent in November 2019, according to the Australian Bureau of Statistics.
Over the past year, trend employment increased by around 269,000 people (2.1 per cent), which continued to be above the average annual growth over the past 20 years (2.0 per cent).
Full-time employment increased at the same rate as the past 20 years (1.6 per cent), and part-time employment (3.2 per cent) was above the average annual growth over the past 20 years (3.0 per cent).
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.