Multiples

Question 1

Which are the types of multiples?

Answer 1

1)

• Stock market: comparable companies
• Transaction: comparable transactions (include control premium)

2) current, trailing, forward

From both you get a price and not the value of equity

Question 2

Methods to define comparable companies?

Answer 2

direct comparison
storytelling
modified multiples
statistical techniques (regression problems are not always linear relationship, relationship change, multicollinearity)

Question 3

Which multiple to choose?

Answer 3

only one multiple and not average, the one that most meet valuation needs, highest R2, the one that seems to have more “sense” for the sector.

Question 4

Which are the right multiples for each sector?

Answer 4

manufacturing (P/E),
companies with high growth potential (PEG ratio),
start-ups (multiples of turnover),
infrastructure (EV/EBITDA),
REIT (P/CFE)(Net earnings+Depreciation)(g, PEG ratio), financial (P/BV (emphasis on ROE)),
retail (revenue multiples (multiple turnover))

Question 5

Asset side multiples

Answer 5

• EV/Sales
• EV/EBIT
• EV/EBITDA: preferred because linked to a potential cash flow, less easily manipulated, avoid depreciation that is country specific.

Question 6

FORMULA: EV/EBITDA

Answer 6

EV/EBITDA=((1-t))/(WACC-g)+(D&Amm(t)/EBITDA)/(WACC-g)-(CAPEX/EBITDA)/(WACC-g)- (∆WC/EBITDA)/(WACC-g)

Question 7

Equity side multiples

Answer 7

• P/E: (Payout*(1+g))/(k_e-g)
• P/BV: (ROE*Payout ratio)/(k_e-g)
• PEG: PE/(Growth rate in earnings)

Lower the PEG, the more the company may be undervalued