The valuation performance of mathematically-optimised equity-based composite multiples

• Autores: Nel, Soon, Le Roux, Niël
• Formato: artículo
• Fecha de Publicación: 2017
• Institución: Universidad ESAN
• Repositorio: ESAN-Institucional
• Lenguaje: inglés
• OAI Identifier: oai:repositorio.esan.edu.pe:20.500.12640/1866
• Enlace del recurso: https://revistas.esan.edu.pe/index.php/jefas/article/view/123; https://hdl.handle.net/20.500.12640/1866; https://doi.org/10.1108/JEFAS-02-2017-0042
• Nivel de acceso: acceso abierto
• Materia: Emerging markets; Composite multiples; Equity multiples; Equity valuations; Valuation precision; Mercados emergentes; Múltiplos compuestos; Múltiplos de equidad; Valoraciones de acciones; Precisión de la valoración; https://purl.org/pe-repo/ocde/ford#5.02.04

Purpose – This paper aims to examine the valuation precision of composite models in each of six key industries in South Africa. The objective is to ascertain whether equity-based composite multiples models produce more accurate equity valuations than optimal equity-based single-factor multiples models. Design/methodology/approach – This study applied principal component regression and various mathematical optimisation methods to test the valuation precision of equity-based composite multiplesmodels vis-à-vis equity-based single-factor multiples models. Findings – The findings confirmed that equity-based composite multiples models consistently produced valuations that were substantially more accurate than those of single-factor multiples models for the periodbetween 2001 and 2010. The research results indicated that composite models produced up to 67 per cent more accurate valuations than single-factor multiples models for the period between 2001 and 2010 which represents a substantial gain in valuation precision. Research implications – The evidence therefore suggests that equity-based composite modelling may offer substantial gains in valuation precision over single-factor multiples modelling. Practical implications – In light of the fact that analysts’ reports typically contain various different multiples it seems prudent to consider the inclusion of composite models as a more accurate alternative. Originality/value – This study adds to the existing body of knowledge on the multiples-based approach to equity valuations by presenting composite modelling as a more accurate alternative to the conventionalsingle-factor multiples-based modelling approach.