Equity Valuation Singapore: How to Value Shares in Private & Publicly Listed Companies

Equity value comes into question in a range of situations: a share transfer, a capital raising exercise, a proposed acquisition, or shareholders needing to establish what their interests are worth. The approach to equity valuation in Singapore depends on the nature of the business, the information available and the purpose of the valuation.

For a publicly listed company, the market price of its shares provides an observable reference point. For a private company, where there is no active market for its shares, value must be assessed by applying established valuation approaches to the company’s financial and business information.

Key Takeaways

• Listed and private companies require different approaches to equity valuation in Singapore.
• Market capitalisation and P/E ratios can help assess listed companies, while private companies may be valued using market, income and asset-based approaches, depending on the business, its stage in its business lifecycle and information available.
• Factors such as financial performance, growth prospects, industry conditions, capital structure and business risk can affect equity value.
• Equity valuation may be needed for M&A, fundraising, share transfers, financial reporting, tax, restructuring, disputes and shareholder matters in Singapore.
• The valuation approach should match the company, available information and purpose of the valuation.

How Are Shares Valued in Publicly Listed Companies?

Shares listed on the Singapore Exchange (SGX) have an observable market price, providing a useful reference for a company’s equity value. A fuller assessment will also take into account the company’s financial performance, comparable companies, market conditions and future prospects.

1. Market Capitalisation

Market capitalisation is calculated by multiplying the market price per share by the number of outstanding shares.

Market Capitalisation = Share Price × Outstanding Shares

This indicates the market value of the company’s publicly traded equity at a particular point in time.

2. P/E Ratio

The P/E ratio compares a company’s share price with its earnings per share. It is commonly used to assess valuation levels against comparable companies in certain industries or against the company’s own historical trading range.

Other market-based measures, such as EV/EBITDA, price-to-book and revenue multiples, may be more appropriate depending on the company, its industry and its profitability.

3. SGX Valuation Rules

For certain acquisitions or disposals of shares involving SGX-listed companies, the SGX Listing Rules provide a reference for determining transaction value: listed shares are assessed by reference to market value, while unlisted shares are assessed by reference to net asset value. These rules provide transaction context rather than replacing a broader equity valuation exercise.

They are not a valuation methodology in themselves. However, where applicable, these requirements can provide useful context when assessing a listed company’s transaction value and considering the basis used for a valuation.

How Are Shares Valued in Private Companies?

Private companies do not have a publicly traded share price, so equity valuation services in Singapore need to assess the company’s financial performance, future prospects, assets and risks. Spring Galaxy applies three principal approaches – income, market and asset-based – with the choice depending on the business, the information available and the purpose of the valuation.

1. Market Approach

The market approach assesses value by reference to comparable companies or precedent transactions, with adjustments made where differences between the subject company and the comparables affect the analysis.

For a private company, a valuer may consider comparable listed companies and valuation multiples such as P/E, EV/EBITDA and EV/Revenue.

The key consideration is the quality of the comparables. A private company may differ from a listed peer in terms of size, growth, profitability, diversification, geographic exposure or business risk. These differences must be adjusted for when interpreting the resulting multiples.

2. Income Approach

The income approach assesses a business based on the future economic benefits it is expected to generate. A common technique is Discounted Cash Flow (DCF) method, which estimates future cash flows and discounts them to their present value using a rate that reflects the risks associated with those cash flows.

DCF is most appropriate where reasonable financial projections are available. Its outcome depends on assumptions such as revenue growth, margins, investment requirements and discount rates.

3. Asset-Based Approach

The asset-based approach assesses the value of a company’s assets net of its liabilities. It is commonly used for property-holding, investment and other asset-intensive businesses, or where earnings do not provide a reliable indication of value.

Where appropriate, book values are adjusted to reflect the current market value of the underlying assets.

What Factors Influence Equity Value?

The valuation method is only one part of the assessment. Understanding the company, its market environment and the factors that influence its future performance is equally important.

Key considerations include:

• Financial performance: Revenue, profitability, cash flows, margins, capital expenditure and working capital requirements.
• Growth prospects: Expected growth, market opportunities, competitive position and the assumptions supporting future projections.
• Industry conditions: Competition, demand, applicable regulation, interest rates and wider economic conditions.
• Capital structure: Debt, cash and other financing arrangements that affect the value attributable to shareholders.
• Intangible assets: Intellectual property, software, brands and customer relationships can carry significant weight, particularly where intangible assets drive much of the value.
• Business risk: Customer concentration, key-person dependency, supplier relationships, technology and regulatory exposure.

When is Equity Valuation Required in Singapore?

There are several situations where an assessment of equity value can support a corporate or financial decision in Singapore.

• Mergers and acquisitions: Valuation provides a basis for assessing a target company, structuring transaction terms and supporting negotiations between buyers and sellers.
• Fundraising: For private companies raising capital, valuation helps establish the relationship between the investment amount and the equity interest being offered to investors.
• Share transfers: An assessment of value can provide a basis for determining transaction terms when shares are transferred between shareholders or other parties.
• Shareholder matters and disputes: An independent valuation may be required when shareholders have differing views on the value of their interests or as part of a legal or corporate process.
• Financial reporting: Fair value measurement under SFRS(I) 13 applies in a range of reporting situations, with the methodology and inputs depending on the nature and purpose of the valuation.
• Restructuring and strategic planning: Valuation can support decisions involving capital restructuring, business exits and other strategic alternatives.

Choosing the Right Equity Valuation Approach

There is no single method that works for every equity valuation exercise in Singapore.

A company with lumpy cash flows may be better suited to an income-based approach. A business with predictable profitability and reliable market comparables may be assessed using the market approach, while an asset-intensive company may require greater focus on the value of its underlying assets.

In practice, more than one approach is often applied. Comparing the results gives a broader view of value and highlights areas that warrant further analysis.

The final approach should reflect the company, available information and purpose of the valuation.

Why Professional Equity Valuation Services Matter

A valuation depends on the quality of the financial information, market data and assumptions used. Experienced providers of equity valuation services in Singapore bring these together through financial analysis, valuation modelling, market research and by applying necessary judgements which comes with experience to arrive at a well-supported assessment of value.

Valuation is a subjective exercise and hence the length and breadth of experience of the valuer becomes essential in arriving at a robust and defensible valuations where the necessary judgements are required of the valuer.

Where a valuation is likely to be reviewed by investors, shareholders, auditors or regulators, a properly documented assessment provides a clear and defensible basis for the decisions that follow.

At Spring Galaxy, the team examines the company’s management, business strategy, financial performance, industry, peer performance, growth prospects and capital structure before selecting the valuation approach. Depending on the purpose and the method used, the analysis may also consider risk-weighted cash flows or an adjusted discount rate, marketability discounts, control premiums or minority discounts.

Spring Galaxy provides business and equity valuations for M&A, fundraising, financial reporting, tax, strategic planning, shareholder matters and disputes. The team prepares valuation reports that set out the methodology, assumptions and analysis behind the valuation, giving clients an independent basis for negotiations and financial decisions in Singapore.

Conclusion

Equity valuation in Singapore is not simply about applying a formula to a company’s financial statements. The appropriate assessment depends on the nature of its business, its financial performance, available market information and the purpose of the valuation. Valuation judgement is needed and hence the experience of the valuer is essential to be able to defend the valuation.

For listed companies, market prices and trading multiples provide important reference points. For private companies, the income, market and asset approaches can provide different perspectives on value, depending on the business and the information available.

Engaging an experienced valuation adviser provides an independent, evidence-based assessment of the business, giving management and shareholders a firmer footing for negotiations and for the decisions that follow.