If you have ever listened to Warren Buffett and other investors, they'll often talk about intrinsic value. This is where they look for stocks where the intrinsic value of the company is greater than what the market share price is indicating. In these situations that would be a good investment to make.
At CORPLAN we are specialists in SME's so our clients are not listed on stock exchanges and it's difficult to gauge what they shares are worth let alone compare that to the intrinsic value.
Some would argue that for SME's share value and intrinsic value are one and the same, because its value is what it is. And the reason this isn't the case for market shares is because the market can be irrational.
Our suggestion is that SME's can absolutely have an intrinsic value which is often different from its market valuation. We see this all the time where apparently identical businesses are bought and sold for completely different amounts. One has a higher intrinsic value over the other.
What is this intrinsic value?
Typically with SME's, it all comes down to the people, particularly the management of the company. Similarly to someone saying in real estate it's all about; location, location, location. Well in an SME as private equity might agree, it's all about; people, people and people.
There are other factors which influence intrinsic value yet if observing two business, the remark is often; they know what they are doing, they are good operators. This is usually really obvious in restaurants. How can two restaurants almost side by side, doing almost the same food, one can be packed with lines out the door and the other is found empty. It always comes down to the people. The people buy the food, cook the food, serve the customers and create a winning environment.
At CORPLAN we do extensive interviews and business modelling to help discover and unlock intrinsic value in SME's. Part of that process includes our IVR, which is our Intrinsic Value Report. This is akin to a road map for SME's to follow on a path to growth.
If you'd like to know more about the process, send us an email at info@corplan.au