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July 2017
KPMG.com.au
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All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Contents
Introduction 4
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
4 For all it’s worth | KPMG Valuation Practices Survey 2017
Introduction
Welcome to KPMG’s Valuation
Practices Survey 2017
Sean Collins
Partner in Charge, Valuation Services
Deal Advisory
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG
International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 5
Valuation plays a significant role within many areas We captured the views of 45 valuation practitioners from
of finance. a variety of core valuation organisations across Australia,
including Australia’s Big 4 accounting firms, prominent
Understanding what an asset is worth, and what
boutique firms, second-tier accounting firms and
drives that value, is essential when management and
smaller practitioners.
stakeholders need to make informed, and effective,
business and investment decisions. This requires decision The survey was circulated to various practitioners, and
makers to trust the valuer’s opinion. responses were received, in late 2016.
Valuation, however, is not objective. Value is always
influenced by a variety of factors: the preconceptions and
bias of the asset’s owner, the valuer’s understanding of
the market, the methodology that is being used, and the
complexity of the underlying business. These influences
impact the assumptions being made by valuers.
Decision makers must be confident that the assumptions
applied are appropriate, and that they are not overly
optimistic or needlessly pessimistic. This is why it is
essential to know, and understand, the basis of the
assumptions made by a valuer.
We believe the information gathered by this survey
highlights the key assumptions being made by those who
are currently issuing valuation opinions – and provides
a strong reference point in understanding the basis of
those assumptions.
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
6 For all it’s worth | KPMG Valuation Practices Survey 2017
In 2016, Australia recorded its 25th consecutive year of What is your opinion as to the current levels
economic growth. Combined with a low unemployment of value for the following asset classes?
rate, this would normally be an indicator of a strong
economy, but concerns in some sectors tempers the
belief that the Australian economy will sustain a steady 0 = Undervalued 1 = About right 2 = Overvalued
rate of growth.
We asked respondents for their opinion as to current level
1 1
of value for certain key asset classes in Australia:
Real Estate: was considered to be overvalued. Will the 0 2 0 2
south-east Australian property boom continue or will the
housing market finally cool during 2017 and into 2018?
Infrastructure: was seen as ‘highly valued’ reflecting a
significant level of new investment flowing into the sector Real Estate Infrastructure
during the past decade chasing a limited supply of
quality assets.
Listed equities: the perception is that listed equities are 1 1
slightly overvalued. The low interest rate environment 0 2 2
0
continues to drive the equities market, despite a global
environment that is struggling with broad demand and
GDP growth.
Bonds: uncertainty in the bond market is being fuelled by
the underlying interest rate environment. Listed Equities Bonds
Agriculture: a sector that is quickly rising in prominence
with an increase in foreign investment driving transaction 1
1
activity. This has resulted in prices being driven up, but
respondents view the sector as fairly valued. 0 2 0 2
Resources: low commodity prices have impacted
valuations in the resources sector, however, respondents
view the sector as slightly undervalued.
Agricultural Resources
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 7
30 % 44%
to increase in 2017,
the impact of Brexit
and an emerging anti- said steady
globalisation sentiment said increase
in the global economy
may temper equity
market expectations.
While 68% of
68%
respondents were
expecting an increase
in the yield, 50% of
respondents thought the
increase would be less 20%
said steady
said increase
than 1%.
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
8 For all it’s worth | KPMG Valuation Practices Survey 2017
Decreased
16%
12%
2017 2015
Steady
67%
81%
Decrease
7%
0%
2017 2015
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 9
Which of the following sectors do you expect The sector viewed to be most at risk in the next
12 months is construction, a direct result of an
to face impairment challenges over the next
expected slowdown in housing activity and the end of
12 months? large-scale investment into the oil and gas sector.
The Australian retail sector is currently experiencing a
difficult trading environment, with online activity and
24% 20%
other disruptive behaviour (such as Amazon Grocery’s
unique delivery approach) seeing traditional bricks and
mortar retail businesses struggle. Retail is also viewed
Construction Retail Trade as an at-risk sector from an impairment perspective.
18% 15%
Manufacturing Mining
11% 3%
Finance, Insurance, Agriculture,
Real Estate Forestry, Fishing
3% 3%
Services Public
Administration
2% 2%
Transportation Wholesale Trade
& Public Utilities
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
10 For all it’s worth | KPMG Valuation Practices Survey 2017
2015
0 20 40 60 80 100
The 10-year government bond yield
remains the most common source for 10-year gov. bond yield without adjustment
the Australian risk-free rate. Cash rate
10-year gov. bond yield with adjustment
House view
Other
4.5%+
4.0% to <4.5%
3.5% to <4.0%
The range of risk-free rates last applied
by respondents is 1.8% to 4.5%,
3.0% to <3.5%
reflecting the split between valuers
using a spot rate and those using an
2.5% to <3.0%
adjusted rate.
2.0% to <2.5%
<2.0%
0 2 4 6 8 10
Frequency
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 11
Yes No
0 5 10 15 20 25 30
Frequency
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
12 For all it’s worth | KPMG Valuation Practices Survey 2017
Beta and gearing If you unlever and relever the Beta, which
formula do you use?
Market volatility continues to drive valuers to a longer
reference period when assessing beta, with the
majority of respondents preferring a 5-year monthly
or 4-year monthly period over the shorter 2-year
weekly measurement. 0 20 40 60 80 100
54%
5-year When selecting your gearing level, what do
monthly you base your gearing level on?
0 20 40 60 80 100
30
The average gearing level of the comparable companies
14 %
4-year
monthly What tax rate do you use in calculating
2% notional tax cash flows or in re-levering Beta?
Other
0 20 40 60 80 100
Other
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 13
Sometimes
Rarely
42%
Never
The common factors leading to
an ‘alpha’ adjustment include the
assessment of forecasting risk,
start-up risk, construction risk and/or
refinancing risk.
0 20 40 60 80 100
Sensitivity analysis
Other
Other
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
14 For all it’s worth | KPMG Valuation Practices Survey 2017
0 20 40 60 80 100
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 15
Imputation credits Do you include a value for future imputation benefits in the
following situations:
If a company franks its dividends, shareholders
receive a franked dividend, which means they get
an imputation credit for the tax that a company has Discounted cash flow (DCF) for a
already paid. For valuation purposes, a decision must general business
be made whether to include or ignore the franking
benefit (credit).
0 20 40 60 80 100
No
0 20 40 60 80 100
No
0 20 40 60 80 100
No
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
16 For all it’s worth | KPMG Valuation Practices Survey 2017
0 20 40 60 80 100
Other
2017
The Gordon Growth (or perpetual
model) remains the preferred
methodology for assessing terminal
value. 2015
Other
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 17
Median Mode
Median Mode
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
18 For all it’s worth | KPMG Valuation Practices Survey 2017
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
For all it’s worth | KPMG Valuation Practices Survey 2017 19
Price/Earnings pre-tax
Enterprise value/Resource
Enterprise value/Revenue
0 20 40 60 80 100
© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG
International. Liability limited by a scheme approved under Professional Standards Legislation.
Contact us
Sydney Melbourne
Sean Collins Adele Thomas
Partner in Charge Partner
Valuation Services, Deal Advisory Valuation Services, Deal Advisory
+61 2 9335 7447 +61 3 9288 6139
scollins1@kpmg.com.au athomas1@kpmg.com.au
Jo Lupton Brisbane
Partner Bill Allen
Valuation Services, Deal Advisory Partner
+61 2 9335 7530 Valuation Services, Deal Advisory
jlupton@kpmg.com.au +61 7 3233 3174
billallen@kpmg.com.au
Ian Jedlin
Partner Perth
Valuation Services, Deal Advisory
Jason Hughes
+61 2 9335 8207
Partner
irjedlin@kpmg.com.au
Valuation Services, Deal Advisory
+61 8 9263 7452
jhhughes@kpmg.com.au
KPMG.com.au
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© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
June 2017. NSW N15451ADV