Year of Graduation
Risk Adjustments to Market Multiples for Companies from Emerging Markets
This paper investigates the practical implementation of multiples used for valuation on the emerging markets. The purposes of this work are: first, to define the most suitable multiples evaluating a particular sector of economy, second, to define factors that have a impact on the business of companies performing in any sector of economy and three, to build a valuation methodology that is able to take into account all market differences and imperfections presented on the markets and will have a broad practical application and then to get estimates of the companies working in Russian the oil and gas industry As the explanatory variables in regression analysis were used three most popular multiples evaluating oil and gas industry P / E, EV / EBITDA and EV / production. In the theoretical part there were considered three main risk adjustment techniques currently used on practice.The analysis was conducted on the basis of 28 largest companies in the oil and gas industry. Operating and financial characteristics of the companies were taken 2013 fiscal year. Also in the model were used average net profit and EBITDA growth rates for the last 3 years. Market rates were fixed at 1 January 2014. Adjustments were carried out using such indicators as WACC and the yield to maturity of 10-year bond denominated in dollars.Regression analysis helped to identify key operating and financial factors that have an impact on multiples used in the model taking into account peculiarities of the oil and gas industry, as well as helped to show that adjustments describing country risks are really needed. There were also shown the importance of adjustments in the revenue structure on the example of Exxon Mobil. The best results showed the EV/EBITDA multiple. Correction of initial data with the yield to maturity of 10-year bond would eliminate risks.