Multiples are indicators that relate one series of variables referring to a single security in order to make it easily and quickly comparable with the respective competitors on the market. These indicators can be a useful tool for investors and a quick and easy way to calculate the intrinsic or fundamental value of a stock. In this article we focus on the multiples of the automotive sector of Piazza Affari, in particular of the Ftse Mib.
The multiples of the automotive giants of the Ftse Mib
The Ftse Mib is the reference index of the Italian stock market and within it also contains stocks active in the automotive sector. Considering only the capitalization of each sector, calculated as the sum of the market caps of the individual securities that are part of it, the primacy goes to the automotive sector, made up of 4 companies with an overall valuation of more than 155.9 billion euros and equal to 21 .7% of the total (data as of April 24, 2024).
The following table shows the best-known multiples:
price/book value (P/BV) earnings per share (EPS) price/earnings per share (P/E) enterprise value/sales (EV /SALES) enterprise value/gross operating margin (enterprise value/earnings before Interest taxes depreciation and amortisation, EV/EBITDA) enterprise value/earnings before Interest and taxes, EV/EBIT
Title
Last price (€)
Market Cap (€ mld)
P/BV
EPS
P/E
EV/SALES
EV/EBITDA
EV/EBIT
Stellantis
23,43
73,9
0,87
6,42
3,75
0,27
1,68
2,25
Ferrari
392,2
71,7
24,85
6,9
57,11
12,24
32,05
45,18
Iveco
11,96
3,2
1,35
1,23
14,94
0,06
0,73
1,26
Pirelli & C.
5,92
5,9
1,08
0,6
12,35
1,32
6,27
10,83
Source Bloomberg, elaborated by the FinanzaOnline Research Office; data updated as of 04/24/2024
Please remember that each individual company has its own peculiarities and, therefore, the selection activity cannot ignore the in-depth analysis of each individual investment theme.
The multiples linked to the price
As we have said, market multiples are used in comparative analysis with the aim of comparing the positioning of a company compared to its competitors. For simplicity we will distinguish them into multiples relative to the stock market price and multiples relative to the value of the company. The former are relationships between the market prices (quotations) of an equity instrument and a given balance sheet quantity. The most commonly used financial statement figures are profits and book value of equity. Price multiples are the most used by investors and allow you to quickly understand how the market views the company and what value it attributes to it at a given moment.
Il P/BV (price to book value) represents the ratio between the market value of a company’s equity and its book value. This multiple depends on the profitability of equity, expressed as ROE (Return on Equity). A high ROE usually corresponds to a high P/BV, and vice versa. P/BV is especially useful for comparing similar companies within the same industry that follow the same accounting principles. It is important to note that this multiple cannot be used to compare companies in different industries or with different accounting standards.
L‘EPS (earnings per share) represents a company’s net income divided by the total number of shares outstanding in a given year.
Il P/E (price to earnings) iIndicates how many times the share price reflects expected earnings. A higher P/E generally corresponds to higher expected earnings growth (EPS), while a lower P/E may indicate more modest expected growth or greater uncertainties about the predictability of future earnings. A low growth rate coupled with high P/Es should warn investors, while significant growth with low P/Es could attract traders.
The multiples linked to the value of the company
Unlike the previous ones, i multiples linked to the value of the company represent a valuation method of a listed company which corresponds to the stock market capitalization plus net financial debt.
L’Enterprise Value (EV) it is calculated with the following formula: market capitalization + net debt or – net liquidity. EV is a good indicator in the case of acquisitions, as it takes into account the debt that the buyer will have to take on. A company with a low EV can be seen as a good candidate for an acquisition.
L’EV/SALES (enterprise value/sales) it is a market multiple given by the ratio between the value of a company and its turnover (generated in the year). If the resulting ratio is high, it means that the company has a relatively high valuation relative to sales, while a low ratio indicates that the company is valued relatively low relative to revenue. This market multiple is typically used in combination with other multiples or when a company has not generated profits.
L’EV/EBITDA (enterprise value/earnings before Interest taxes depreciation and amortisation) it is a market multiple given by the ratio between the value of a company and the gross operating margin. It represents the price that should be paid in the case of acquisition of the company without debt.
L’EV/EBIT (enterprise value/earnings before Interest and taxes) it is a market multiple given by the ratio between the value of a company and the net operating margin. Compared to the previous one, this multiple subtracts all depreciation and provisions, offering a better estimate of free cash flows compared to Ebitda.
The lower the EV/EBITDA or EV/EBIT ratio, the better the company is undervalued by the marketcompared of course to comparable companies.
Finally, it should be noted that financial analysts also use multiples to calculate the so-called “target price” of a specific stock. In fact, among the best-known company valuation methods we find the comparison of multiples (P/E, EV/EBITDA or others, with a sample of comparable companies). For financial stocks, analysts usually compare ROE, cost of capital and P/BV (price to book value).