Corporate Finance Partner

Finiconsult Ltd. F-Valuation Software

Dear ......,

You receive this message because you are interested in company valuation. You bought F-Valuation Software or downloaded a demo version in the past. Herewith the latest news on the risk premium.

Latest Risk Premium 2016 now avalailable. The UK risk premium 2016 remained almost stable at 1.97 compared to 2015 with 1.91%. For 2014 the risk premium was 3.50%, in 2013: 1.67, in 2012: 1.56% and still 4.05% in 2011. All calculations are based on the maximum number of years since 1900 and used as method the unweighted average of all methods of calculation.

The long term 'risk free' UK rate moved slightly up to 2.29% end 2015 from 2.09% end 2014. In total this gives actually a WACC of 4.26% (1.97+2.29) remuneration for the equity component in company and other valuations. This WACC figure gives also a clue if stock markets are over- or undervalued. Disregarding leverage possibilities, a WACC of around 4.26% implies conversely, a theoretical Price/Earnings relation of about 23.5. The actual unweighted PE for example of the FTSE All Share showed on February 10 2016 a value of 16.7 and the FTSE100 18.7. A large difference of 6.8 respectively 4.8 point. Bear in mind that the comparabale weighted PE's were 18.4(FTSE-All-Share) and 18.6(FTSE-100).

Implications: Reasoning this way, the recent sharp decline in almost all stock market prices can not be justified by concerns about China and declining commodity prices. Taking into account leverage effects, the observed PE may well be higher than this theoretical PE. History also shows that stock market turning points only begin if the actual PE exceeds the theoretical PE.

Thus, at present it seems that the risk of a stock market crash is low. Short-term players and gamblers in all their disguises received tit for tat and many of them abandoned the game. Long-term investors only lick their wounds. The current average unweighted dividend yield between 3 and 4% (on FTSE-AllShare and FTSE-100), compared to a return of 2.29% on long-term government loans remains an attrative alternative for long-term investors. Only when short-term players and gamblers come back massively and / or central banks adjust strongly their low interest rate policy, a crash scenario might become at hand again.

A free valuation demo can be downloaded from this website by clicking on the link: Free Software. The latest version 8 with the latest risk premiums can be purchased online with the link: Order Software.

Best Regards, Finiconsult Ltd
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