Bizval Indicator Report
for September 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 |
|---|---|---|
| 333 | 325 | 2.6% |
Source: Bizval, 30 September 2024.
Marginal gain for the Bizval Indicator over the year to September 24.
The Bizval Indicator posted a marginal gain of 2.6% in the September 2024 quarter on a year-to-year basis.
Whilst this is the 6th consecutive quarter of year-on-year growth, the momentum is slowing. The rate of growth is now more subdued and when viewed on a quarterly basis, it is now the second quarterly decline, being a 1.8% decline on the June 2024 quarter.
Actual valuation multiples from our data retracted this quarter, which in turn placed downward pressure on the Bizval Indicator. The P/E ratios of small ASX listed companies rose on an annual basis, but on a quarterly basis declined slightly, as was the case last quarter.
Business lending rates advertised by the big four banks remained unchanged. The volume of businesses listed for sale decreased by around 3.0% on an annual basis.
Businesses from Professional Services, Construction, Online Retail and Technology industries featured in our recent valuation engagements.
General Economic Indicators
| INDICATOR | NOW | 1 YEAR AGO | MOVEMENT |
|---|---|---|---|
| All Ordinaries Index AU (1) | 8,538 | 7,242 | 17.90% |
| RBA Cash Rate AU (2) | 4.35% | 4.10% | 0.25% |
| GDP AU (3) | 1.00% | 2.10% | -1.10% |
| Dow Jones Industrial Average USA (4) | 42,330 | 34,007 | 24.47% |
| Inflation Rate AU (5) | 3.80% | 6.00% | -2.20% |
| Unemployment Rate AU (6) | 4.10% | 3.70% | 0.40% |
(1) Source: Australian Stock Exchange, 30 September 2024
(2) Source: Reserve Bank of Australia, 25 September 2024
(3) Source: Australian Bureau of Statistics, 30 June 2024 (seasonally adjusted, yearly)
(4) Source: New York Stock Exchange, 30 September 2024
(5) Source: Australian Bureau of Statistics, 30 June 2024 (headline, yearly)
(6) Source: Australian Bureau of Statistics, 19 September 2024
Dow Jones Industrial Average
The Dow maintained its impressive growth in the September quarter, up a whopping 24.0% from September 2023.
The Dow Jones is comprised of 30 of America’s (and some of the world’s) largest companies, such as Apple, Microsoft, Visa and Coca-Cola. It closed at an all-time high of 42,330 on 30 September 2024.
Its recent strength is quite phenomenal given current events such as the US election (including assassination attempts) and conflicts in the middle east and Ukraine.
Unemployment Rate
The unemployment rate was steady at 4.2% in August, according to seasonally adjusted data released on 19 September 2024 by the Australian Bureau of Statistics (ABS).
Kate Lamb, ABS Head of Labour Statistics said: “The number of unemployed people fell by around 10,000, while the number of employed people grew by around 47,000, in August. This resulted in the unemployment rate remaining steady at 4.2% and the participation rate remaining at its record high of 67.1%.
“The growth in employment increased the employment-to-population ratio by 0.1 percentage point to 64.3%, which is just below the November 2023 historical high of 64.4%.” (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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