Valuation multiples of UK listed companies saw an uplift in the first quarter of 2023 as increasing investor optimism regarding the macroeconomic outlook pushed market multiples higher, according to new analysis from financial advisory firm, Interpath Advisory.
Interpath’s quarterly ‘Valuation Multiples by Industry’ report summarises median valuation multiples of UK and US publicly-listed companies by sector, industry group, and industry. Interpath’s latest quarterly review considers how valuation multiples evolved over the course of Q1 2023 based on prevailing market data and historical trailing last-twelve-months (“LTM”) financial data.
The latest analysis reveals that over half (55%) of UK industries reported higher median multiples in the first quarter of 2023 than in the final quarter of 2022.
From a sector perspective, the report found that companies across the UK Real Estate sector exhibited the highest median EBITDA multiple (22x) over the course of the quarter, with Information Technology (17x), Communication Services (14x) and Industrials (10x) being the only other sectors to present median EBITDA multiples of above 10x.
When considering valuation multiples on an industry level, Office REITs (23x) and Industrial REITs (22x) presented the highest median EBITDA multiples, with Interactive Media and Services ranking third at approximately 19x.
Noah Ojetola, director in Interpath’s Valuations practice, commented: “UK equities ended Q1 2023 up as investors speculated that the Bank of England would consider cutting interest rates towards the end of 2023. The FTSE 100 reached an all-time high in February amid growing hopes that the UK could avoid a recession, before retreating sharply due to problems within the US banking sector and fears of potential market turbulence. Consequently, although March saw drops in the median multiple of most industries within our analysis, the January and February increases in valuation multiples offset much of the March turbulence.”
In the US, over 50% of industries reported higher median multiples compared to Q4 2022, coinciding with the Fed’s decision to reduce the pace of interest rate increases following welcome drops in inflation.
From a sector perspective, US Real Estate exhibited the highest median EBITDA multiple (16x), although Information Technology followed closely at just above 14x. Healthcare (14x) and Utilities (13x) were the only other sectors with a median EBITDA multiple above 12x. When we consider valuation multiples at an industry level, Software again exhibited the highest median EBITDA multiple (32x), with Industrial REITs and Healthcare Technology also having a median EBITDA multiple of above 25x.
Industries within the Energy and Utilities sectors were the only industries to experience a drop in each of the their median revenue, EBIT, EBITDA, and total assets multiples, when compared with Q4 2022.
Noah Ojetola said: “US stocks rallied in January amid speculation that the Fed could potentially slow the pace of anticipated interest rate rises; however, February’s release of unexpectedly strong US economic data thwarted the market’s optimism. March 2023 began with fears of a potential global banking crisis caused by the collapse of two US banks and the forced takeover of Credit Suisse, causing many investors to flee stocks for less risky assets. Nevertheless, by the end of Q1 2023, initial concerns regarding systematic banking risks had dissipated somewhat following swift action by regulators and central banks.
“Despite general market uncertainty, growth and technology stocks ended Q1 2023 as the major beneficiaries of the stock market’s cautious optimism regarding anticipated future rate hikes and the outlook for the US economy. However, from a wider stock market perspective there still remains significant potential downside risk resulting from negative earnings surprises and lower-than-expected economic growth.”
You can download the full analysis here.
