The net asset value is calculated with the help of so called EBIT-multiples that are multiplied by a 12 month historic rolling operating result (EBIT) for each business area. The key to a true and fair value is to find true and fair multiples. This is done by identifying comparable listed companies in the industries where Latour’s wholly owned operations are active. An EBIT-multiple is calculated for each company by relating the company’s operating result to the EV (Enterprise Value).
The EV consists of the market value adjusted for the net debt/equity ratio in the comparable company. Since the comparable listed companies are valued differently by the market, an interval of EBIT-multiples is created for each of Latour’s business areas. The interval provides an indication of the value the market puts on Latour’s wholly owned operations.
The net asset value for the wholly owned operations is then combined with the market value of the listed holdings. After that the value of other assets is added on and Group net debt is deducted. The remaining amount is Latour’s net asset value. This valuation should be seen as indicative and not as a complete market valuation. for example, the net asset value model does not consider future forecasts for Latour’s holdings, or comparable companies. The fluctuations in the business cycle in the last few years mean that the results for the business areas as well as for comparable companies vary considerably. This means that comparable multiples stretch over a great span. Therefore this presentation has adjusted used multiples in order to avoid unreasonable values. Other valuation multiples (such as EV/Sales) have also been used to support the chosen multiple span.
This is how the method works – step by step
1. Identification of comparators
Latour identifies listed companies operating in industries related to its wholly-owned industrial operations.
2. Calculation of EBIT-multiples
When comparators are identified, the companies’ EBIT multiples are reviewed. An EBIT multiple is based on the company’s EV (Enterprise Value). The EV is calculated by increasing the market value by the company’s net debt. The EV is then divided by the operating profit (EBIT). A company with a market value of SEK 90 m, a net debt of SEK 10 m and an EBIT of SEK 10 m will have an EBIT multiple of 10.
3. Conversion to multiple spans
When an EBIT multiple has been calculated for each company, they are added together by group to obtain a multiple range for each business area. If there are two comparators for Swegon, for example, where one has a multiple of 10 and the other has a multiple of 14, then the EBIT multiple, used to calculate the value of the Swegon business area, falls into the 10–14 range.
4. Combining the net asset value of the wholly-owned operations
The business areas are valued when the spans for the EBIT multiples are established. The trailing 12-month operating profit (EBIT) is calculated first. This is then multiplied by the EBIT multiple. Let’s say that Swegon reports a trailing 12 month operating profit (EBIT) of SEK 100 m. With the EBIT multiple of 10–14, the value becomes SEK 1.0–1.4 billion. When calculations have been made for all the business areas, the results are put together to obtain a total value in the form of a range.
5. Combined with the value of the listed holdings
To obtain the investment portfolio’s net asset value, the share prices of the holdings at the end of the period are multiplied by the number of shares owned in each company. This is combined with the net asset value of the wholly-owned operations, according to steps 1–4. After adding other assets and deducting net debt, the total is a net asset value for Latour, which is also in the form of a range.