BVR Logo 16 June 2020 | Issue 15-2

BVWire—UK is a free service from BVR focusing on the business valuation profession in the United Kingdom. We offer news and perspectives from valuation thought leaders, the High Courts, HMRC, the standard-setters, ICAEW, RICS, and more.

Please be in touch with your perspectives, news, and ideas—and pass this issue along to colleagues (complimentary sign-up instructions are here).

New business valuation resource from Professor Fernandez captures low market returns

Pablo Fernandez continues to release research that may assist UK business valuers working on reports with valuation dates in Q1 2020. His latest study, Shareholder Return of the EURO STOXX 50 Companies: 2004-2020 (April 30) analyses 62 companies: 47 current members in the EURO STOXX 50 with trading records since December 2004 and 15 prior member companies. Fernandez finds returns since 2004 that would disappoint, since the initial COVID-19 market crises is included. The average annual return for these top listed companies was 4.8%, and 19 had negative returns.

Eduardo de Apellaniz, also of the IESE Business School, co-wrote the study.

The top performers during this 16-year period? ASML would have been your best bet, followed by Kering, Deutsche Boerse, LVMH, and Adidas.

COVID-19 is definitely a factor. Not surprisingly, in the first four months of 2020, only six of the EURO STOXX 50 had positive return and the average return was -24.4%. Even considering only the period December 2018 to 30 April 2020, 26 companies had positive return, but this group, as a whole, lost value, with an average return of -3.2%.

Most global markets including the LSE have now recovered more than half of their losses from March and April but the volatility continues to suggest that COVID-19 continues to damage values. Financial analysts are considering or using increased market risk premia, multiple-scenario forecasting, and ‘impaired’ pricing from listed comparables, among other methods, to account for the economic change.

Third IVSC goodwill paper looks to step up ‘headroom’ alternatives to amortisation

The IVSC have published ‘Opportunities for Enhancing the Goodwill Impairment Framework,’ the third and final paper in its series looking at the IASB proposal to revert to goodwill amortisation. Much of the feedback from the business valuation, and even the audit, profession has trended negative, and groups such as CFAI have submitted research suggesting the amortisation switch could damage the already-bruised world economy.

IVSC have sought to foster debate with their three-part series. In the first article, ‘Is Goodwill a Wasting Asset?’ the IVSC examined whether goodwill is economically a wasting asset, and, if so, whether the life and implicit decline in value can be reasonably estimated and supported. In paper two, ‘Information Value of the Current Impairment Test: Leading or Lagging Indicator?’ the IVSC explored the information content of the goodwill impairment test and highlighted reasons for its limitation as a leading indicator.
The third ‘Opportunities’ paper (written by Kevin Prall, business valuation technical director, in consultation with the IVSC Business Valuation Board) looks back over the core themes presented earlier in the series and looks in more detail at the opportunities for enhancing the goodwill impairment framework. One suggestion Prall examines is the use of ‘step up’ headroom to ‘account for the internally generated intangibles and other goodwill.’ IVSC remind business valuers that this approach is hardly new in the UK, having been identified in FRS 11 Impairment of Fixed Assets and Goodwill, issued in July 1998 by the UK Accounting Standards Board.

How to value uncertainty whilst keeping your clients’ confidence

Chris Thorne tells BVWire—UK that ‘most valuer’s Inboxes at the moment are full of comments about the difficulties of undertaking valuations,’ but he’s still receiving requests for advice about ‘providing a suitable warning in their reports that their valuations are subject to material valuation uncertainty.’

The requirement to include such advice under certain conditions is of course not new. The RICS Red Book first started including the need for comment on ‘abnormal uncertainty’ in the 1990s. Nevertheless, I know from recent experience of helping firms with their report templates and reviewing completed reports that this is an area which many valuers struggle with.

Before anyone had heard of a virus that would cause the shutdown of large swathes of the world economy, Thorne started to write a briefing for valuers aimed at helping them better understand the purpose of uncertainty clauses. The result, updated for current conditions, was released last week on Amazon. Valuation Uncertainty—Reporting the Unknowable is available as either an e-book or paperback.

Business valuation CPD diary (most events cancelled or postponed)

IVSC Annual General Meeting, 14-16 October, Chicago

EACVA 14th Annual Business Valuation Conference, 29-30 October, Munich

Want to share a news item, comments, or a CPD event? Please contact
David Foster at

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