Bizval Indicator Report
for September 2023
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 |
|---|---|---|
| 325 | 306 | 6% |
Source: Bizval, 30 September 2023.
Bizval Indicator maintains recent gains
September 2023 saw the Bizval Indicator close out at 325, which was an increase of 6% on a year-on-year basis from 306 recorded in September 2022.
On a quarterly basis, September 2023 was only fractionally down on the indicator of 326 recorded in June 2023, maintaining the gains over recent quarters.
The greatest influence on the Bizval Indicator were from reductions in P/E Ratios of small cap. stocks. Conversely, we noted a significant decline in the number of businesses listed for sale, down by 23% over the past year.
Manufacturing, Information Technology, Construction and Professional Services industries continue to be the most prominent amongst our valuations over the quarter.
General Economic Indicators
| INDICATOR | NOW | 1 YEAR AGO | MOVEMENT |
|---|---|---|---|
| All Ordinaries Index AU (1) | 7,242 | 6,679 | 8.43% |
| RBA Cash Rate AU (2) | 4.10% | 2.60% | 1.50% |
| GDP AU (3) | 2.10% | 3.60% | -1.50% |
| Dow Jones Industrial Average USA (4) | 34,007 | 28,726 | 18.38% |
| Inflation Rate AU (5) | 6.00% | 6.10% | -0.10% |
| Unemployment Rate AU (6) | 3.70% | 3.50% | 0.20% |
(1) Source: Australian Stock Exchange, 26 September 2023
(2) Source: Reserve Bank of Australia, 6 September 2023
(3) Source: Australian Bureau of Statistics, 6 September 2023 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 26 September 2023
(5) Source: Australian Bureau of Statistics, 30 June 2023 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 31 August 2023
Dow Jones Industrial Average (DJI)
The Dow Jones Industrial Average was hovering around at 34,006 at the time of writing. Although this was down some 4.6% from 35,630 on 1 August 2023, on a purely annual basis it is up a handsome 18.4% from late September 2022.
The volatility of markets around the world, not just the Dow, continue to puzzle even the most experienced investors and advisors.
This is evidenced by US bonds yields which continue to creep higher. Interestingly, the yield on 10-year US Treasury Bonds closed at 4.5% on 25 September 2023, the first time it has reached that level since 2007, disturbingly just prior to the GFC.
Consumer Price Index (CPI)
Annual CPI inflation was 6.0% in the June 2023 quarter, lower than the 7.0% annual rise in the March 2023 quarter. This marks the second consecutive quarter of lower annual inflation, also known as ‘disinflation’, from the peak of 7.8% in the December 2022 quarter.
Services annual inflation recorded its largest annual rise since 2001, driven by higher prices in a range of services categories including rents, restaurant meals, holiday travel and insurance.
Goods annual inflation continued to ease from 7.6% in the March quarter to 5.8% in the June quarter after two years of strong price increases. Price rises for food, furniture, appliances and clothes slowed in the June quarter, while automotive fuel prices were 3.6% lower compared to 12 months ago. (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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