Valuations
Considerations:
- Risk & return is major consideration when valuing a company
- A business’s value lies within the equity of a business.
- It’s very important to understand the business we are valuing
- “Value in a Valuations, lies in the decision that follows the calculation”
o Did my decision after the valuation result in me, being “in the money”/ “Did I Unlock
Value”
o Or did it result in me not making as much money as it was valued at?
NOTE: unlocking the value is a broad and subjective idea. People unlock value in
different ways
- Value = is made up of: risk and returns
o Intrinsic value = what the value of the company is currently (excludes the value
the acquirer can bring to the company)
o Max value = the value of the company acquired + the value the acquirer brings to it
(Synergy)
Majority = Free cash flow (having a control, premium built into it)
- So when we discount our free cash flows at WACC, (less) the market value of debt = the majority
value
o Then we multiply it by the % they hold
o If we are using free cash flow (majority) for a minority, we then get our value and
multiply it by a discount to reduce the figure to a minority figure
Minority = all the other methods
- Here we need to add a premium.
- Because we valued the company for minority purposes, there is no control premium built into it
o So if we want to value a majority shareholding using these minority methods, we
multiply it by a premium (because we are adding the control premium to it)
-
Valuation Methods
Listed Shares
Easy to obtain market values of the shares on JSE website
Market price determined by demand and supply
- But even with a market price, we might still need to do a valuation for mergers and acquisitions
where an investor will pay a premium on market price.
Unlisted shares
Market value is not easily obtainable, and the value needs to be calculated
Considerations:
Considerations:
- Risk & return is major consideration when valuing a company
- A business’s value lies within the equity of a business.
- It’s very important to understand the business we are valuing
- “Value in a Valuations, lies in the decision that follows the calculation”
o Did my decision after the valuation result in me, being “in the money”/ “Did I Unlock
Value”
o Or did it result in me not making as much money as it was valued at?
NOTE: unlocking the value is a broad and subjective idea. People unlock value in
different ways
- Value = is made up of: risk and returns
o Intrinsic value = what the value of the company is currently (excludes the value
the acquirer can bring to the company)
o Max value = the value of the company acquired + the value the acquirer brings to it
(Synergy)
Majority = Free cash flow (having a control, premium built into it)
- So when we discount our free cash flows at WACC, (less) the market value of debt = the majority
value
o Then we multiply it by the % they hold
o If we are using free cash flow (majority) for a minority, we then get our value and
multiply it by a discount to reduce the figure to a minority figure
Minority = all the other methods
- Here we need to add a premium.
- Because we valued the company for minority purposes, there is no control premium built into it
o So if we want to value a majority shareholding using these minority methods, we
multiply it by a premium (because we are adding the control premium to it)
-
Valuation Methods
Listed Shares
Easy to obtain market values of the shares on JSE website
Market price determined by demand and supply
- But even with a market price, we might still need to do a valuation for mergers and acquisitions
where an investor will pay a premium on market price.
Unlisted shares
Market value is not easily obtainable, and the value needs to be calculated
Considerations:
