Market Multiples Modelling in Emerging Capital Markets

The market multipliers approach is one of the most widely used valuation methods recognized for its simplicity in calculations and intuitive interpretations. The most popular ones are EV/EBITDA, EV/EBIT, EV/Sales, P/E due to their theoretical rationale and the most accurate estimates of EV or Equity value provided. The motivation for doing this research is the fact of absence of universal valuation approach based on market multipliers resulting in the misleading conclusion about fair value of the reviewed company. The second source of rationale is the existence of fundamental economic differences in diverse countries, which results in significant corrections of models applied for companies from specific countries. The goal of this master thesis is to construct an econometric model for estimating fair enterprise and equity value multipliers, which can be used for valuation of the companies from emerging markets, such as China, Brazil and Russia. The sample includes data of all publically traded companies included in core stock market indices of USA (S&P 500), China (SCHE), Brazil (BOVESPA) and Russia (RTS) for the period of 10 years (2009-2018). The resulting model specification shows high level of significance of the following variables: country, industry, profit margin, long-term growth, size, and some other variables from financial statements. Designed models of current EV/Sales and forward P/E and EV/Sales show better valuation accuracy than consensus estimates of market professionals.