Enterprise Value Multiple Update - Dulux
The Aussie operations of Dulux ($DLX) reported its first half results this morning and showed a 9% lift in 1H net profit up 9% and revenue up 4.2%.
So what will these results do to its enterprise value(EV) multiple?
Based on its FY17 results (which are reported as at 30 September each year as they have an international parent entity with a different financial year period), the EV:EBITDA multiple was trading between 12.0x - 14.7x. Allowing for a 25% control premium that is an EV:EBITDA multiple range of 15.0x - 18.4x.
This multiple range was based on full year EBITDA of $241m and revenue of $1.79b. The EBITDA margin was 13.5%. These latest results indicate that EBITDA will increase by $20m to $261m on the back of $1.84b revenue and a 14.2% EBITDA margin.
This confidence in growth of the business has increased the interim 1H dividend by 1c to 14c per share.
So it can be expected that these results will increase share price, but will the increase be enough to also increase the multiple?
It is early days and can hardly be called a trend yet but the share price is up 6c to $8.05 and this is equivalent to a 13.1x EV:EBITDA multiple (a drop of 8% on share price prior to the announcement).
Another interesting fact about Dulux is its PE ratio on the last twelve months is 21.9x. This shows the impact that debt has on the multiple of a business. The net debt is not huge at $368m and less than 1.5x EBITDA, but when considering the value of the enterprise to all stakeholders, the multiple is reduced by net debt.
So what can SME's take from this?
High EV:EBITDA multiples come from growing markets, strong financial results, well structured balance sheet.
Top class manufacturing-based SMEs that have size (revenue greater than $20m and EBITDA margins at approx 15%) and scale will attract higher multiples.
Market value for top class manufacturing SMEs will likely attract 4.5x - 5.5x EV:EBITDA multiple.
Do you know if you are a top-class manufacturing business? Do you know what multiple you would attract? What is the value of your business?