英国名校布里斯托大学财务分析和证券估值课程8

Fundamental drivers of P/B ratio
• Recall residual earnings model
V0 B0
E


REt (1 r e )
t
t 1
• Dividing both sides by B0 we obtain:
V0
E
1
(1 r
Asset-based valuation
Balance Sheet – Accounting view
Book value of assets Fixed assets Net current assets Book value of claims Book value of equity Book value of net debt
V0 B0
E
R E1 re g re g
B0
V0
E
=1+
R O E 0 re
=
re g re g
B0
E
V0

ROE0 g re g
B0
P/B ratio when ROE is constant (Case 3)
Assume: Company is in steady state at t = 0 and growth is constant:
Leverage and P/B ratio
Levered P/B P/B V0
E
Enterprise
NOA
(Unlevered
) P/B
V0
NOA
B0 Levered V0 V0
0 NFO
NOA NFO
0
NOA
0

V0
NOA
NOA
0
V 0NOA FLEV NOA
What are the determinants of multiples?
Price-to-book Profitability Growth Cost of equity Leverage Accounting methods
Price-to-earnings Growth Cost of equity Leverage Accounting methods
Value of equity (VE)= MV of the firm (VF)– MV of net debt (VD) + Pricing error MV of the firm = BV of the firm + Unrecognised goodwill + Pricing error Unrecognised goodwill = (PV – BV) of Assets in Place + PV of growth options
Balance Sheet – Financial view
Market value of the firm PV of Assets in place PV of growth options Market value of claims Market value of equity Market value of net debt
Application: Investment companies Natural resource companies (minerals, oil, timberland) Break-up (liquidation) value
Valuation multiples
Idea: How to compare the valuation of the companies? Share price is not a good summary itself, since it depends on number of shares issued – two otherwise identical companies can have different share price if they have different numbers of share issued Solution: scale share price by some accounting variable or some other industry-specific measure Price multiples commonly reported in the financial press, on-line, etc… The firms with higher multiples considered to be more valuable.
P/B ratio when ROE is constant (Cases 1 and 3)
Assume: Company is in steady state at t = 0 and growth is constant:
R O E 0 re R O E 0 R O E 1 c o n s t. (R O E 0 r e )B 0 re g + R O E 0 re re g
Earnings based
Residual Earnings
Abnormal Earnings Growth
Forecasting based models: - directly value the equity; or - indirectly: value the assets and deduct the value of debt
Week 19
Relative Valuation
Valuation models classification
Valuation models
No forecasting
Forecasting
Real options
Asset-based
Relative Valuation
Cash Flow based
What are the determinants of multiples?

Important: If differences in multiples cannot be explained by the differences in determinants, then companies may be mispriced.
7.0
V N O A /N O A = 3
6.0
V N O A /N O A = 2 .5

Growth, profitability and risk (cost of equity) – fundamental value drivers
Leverage and accounting methods – do affect multiples BUT are not value drivers
Asset-based valuation
Recall valuation in the statement of financial position: At fair value (close to market value) – financial instruments, for example At cost or amortised cost (different than market value) – most of the operating assets Not included (R&D, future growth options, etc.)
Asset-based valuation
Problems: 1. Non-tradable assets (no readily available MV). 2. Market values ≠ Intrinsic values (markets not efficient) 3. MV not representative of the value in the particular use to which the asset is put in the firm. 4. Difficult to identify omitted assets (intangibles) 5. ∑ MV of individual assets ≠ Value of the total assets (synergy efE g re g
B0
P/B increases in ROE P/B increases in growth only if ROE >re (effect of g on denominator relatively larger than on numerator, so P/B increases) If ROE > re , then decrease in payout can increase valuation and P/B by increasing value-added growth
t 1

REt ) e
t
1
PV of RE B0
B0
B0
Fundamental drivers of P/B ratio
• Determinants of P/B ratio
V0
E
1
B0


( R O E t r e )B t 1 (1 r e ) B 0
t
t 1
• Benchmark, “Normal” P/B ratio when RE=0 (ROE=re) E
0
1
FLEV
NFO B
Financial leverage increases levered P/B ratio, if unlevered P/B ratio is bigger than 1.
Leverage and P/B ratio
L e v e re d P/B v s . Fina ncia l L e v e ra g e
Steps: Determine the market value of the individual assets and liabilities Identify omitted assets and assign market value to them Value of the equity = Value of the firm - Value of the debt
Valuation multiples
Multiples: Earnings multiples (price-to-earnings, P/E) Cash flow multiples (price-to-cash flows P/CFO) Book value multiples (market (or price)-to-book - MB, P/B) Revenue multiples (price-to-sales) Non-accounting scaled: Sector specific multiples (e.g. price per registered customer/user)
V0 1 B0
Fundamental drivers of P/B ratio
• P/B ratio: – Increases in profitability (ROE) – Increases in growth in equity (if ROE is higher than cost of equity) – Decreases in riskiness • If P/B>1, then RE>0 and ROE>re and growth adds value
- Historical cost measurement (BV < PV) - Reliability and conservatism PV of future investments (future transactions cannot be accounted for in accounting)