The valuation performance of equity-based multiples in South African context

Abstract

Despite the popularity of multiples among analysts in practice, the emerging market literature offers little empirical guidance for the use thereof. This paper investigates the relative valuation performance of various value drivers when valuing the equity of South African companies listed on the JSE Securities Exchange for the period 2001-2010. The empirical results revealed, among other findings, that earnings-based value drivers offered the highest degree of valuation accuracy, while cash flow- and sales-based value drivers offered the lowest degree of valuation accuracy. Dividend- and asset-based value drivers offered average results. An interesting phenomenon was that, contrary to popular belief, cash flow-based value drivers only offered marginal improvements in valuation accuracy viz-à-viz sales-based value drivers; and not consistently so.