James Palmer is Managing Director in the Valuation Advisory Services practice at Duff & Phelps, a Kroll Business, and has more than 20 years of valuation experience. He explains that there are many significant challenges for valuers in the wake of the COVID-19 pandemic and its economic impacts.

"We are living in very uncertain times and one of the key inputs for any valuation is the outlook for the business that you are valuing. The level of uncertainty around that is clearly much higher than usual in many industries, so estimating the outlook in the short and medium term and what recovery might look like is certainly more challenging,” he says.

“We also look at comparable companies when valuing and markets are currently very volatile. There have been significant falls and now many markets are at an all-time high, which we wouldn't necessarily have predicted. Plus, that volatility is impacting different industries differently—so we are seeing big winners in some of the online companies and big losers in the leisure and transportation industries.”

Drawing on experience

The combination of volatile markets and differing impacts of the pandemic makes for a difficult landscape for valuers. So, how can you go about making an accurate valuation amidst such uncertainty? Palmer explains that this is where valuers must fall back on their experience, keep themselves up to date and put their trust in scenario planning.

He says: “As always, we’re trying to understand as best we can the facts and circumstances around the companies we're looking at, evaluating a range of different scenarios, particularly in businesses that have been badly impacted and where the recovery is still uncertain.

“We must reflect issues like the risk or uncertainty in the discount rate and then we'll benchmark against market information to support the assumptions that we're making. We will also look at how the market is taking into account the risks in that certain industry. Combined, these measures make sure our valuations are as robust and reliable as possible.”

Peer support

Robustness and reliability are key for valuers in pursuit of excellence, which is the focus of this year’s ICAEW Valuations Conference. The conference takes place on 20 May 2021 after a year’s hiatus due to the pandemic, and will be virtual this year. Palmer is pleased that this means members who couldn’t attend the physical conference due to location will now be able to benefit from the event.

This year’s conference welcomes guest speakers including Pablo Fernández, professor in IESE’s Department of Financial Management, who will be addressing common errors and using common sense in valuing and assumptions, and Steve Thomas, Assistant Director HMRC Shares and Assets Valuation, who will present on the structure of SAV and how accountants can work more effectively with them. Valuation anomalies and cost of capital will also be hot topics on the day, along with an economic update.

Palmer, who will be opening the conference, says: “The focus is always on trying to tackle some of the broader issues in the valuation community and this year’s agenda is no different. As valuers, we’re always striving to improve our approaches and methodologies to make them as robust and reliable as possible in an uncertain world and to provide the best product and service we can for our clients.”

The conference, and its focus on excellence, will help valuers do just that.

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