2012 MF Equity Valuation Survey
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  • Source: CGAP Research, Global Microfinance Equity Survey 2012.
  • The brief said 92% but not sure how that was calculated based on data it should really be 87%; I left it at 92% here to be consistent with brief
  • Notes for the LIFI Index: We used Bloomberg consensus estimates (EPS GAAP, and ROE) for the individual stocks composing the LIFI Index. LIFI is a market capitalization-weighted index. Notes for Global Emerging Markets Banks: We show market capitalization-weighted averages of banks covered by J.P. Morgan analysts, representing a sample of 109 banks across global markets.

2012 MF Equity Valuation Survey Presentation Transcript

  • 1. 2012 Global Microfinance Equity Valuation SurveyVolume Growth and Valuation Contraction June 2012
  • 2. The survey results in this presentation are published in:Jasmina Glisovic, Henry Gonzalez, Yasemin Saltuk, and Frederic Rozeira deMariz. 2012. Volume Growth and Valuation Contraction: Global MicrofinanceEquity Valuation Survey 2012. CGAP and J.P. Morgan.For more information please visit:http://www.cgap.org/p/site/c/template.rc/1.9.57511/ 2
  • 3. Introduction• Purpose: The microfinance equity valuation survey provides benchmarks for valuation of microfinance equity, both private and publicly listed, in order to promote market transparency and offer industry trends.• Survey Cycle: This survey cycle covers microfinance equity transactions finalized in the period of January- December 2011.• The following slides provide a summary of results from this years valuation. 3
  • 4. OutlineSection 1: Private Equity Valuation• Methodology• Overall Growth and Valuation Trends• Type of Deals• Transaction Size• Regional and Country Specific trendsSection II: Publicly Listed Companies Valuation (LIFI Index)• LIFI Definition and Methodology• Country and Stock Breakdown• Performance• Valuation SummarySection III: Conclusion 4
  • 5. SECTION IPRIVATE EQUITY VALUATION METHODOLOGY
  • 6. Methodology 6
  • 7. OVERALL GROWTH AND VALUATION TRENDS
  • 8. The number of transactions almost doubled, volume increased by 43% Number & Volume of Transactions 43% Source: CGAP Research, Global Microfinance Equity Survey 2012.• There were 68 transactions totaling $292 million in 2011- up from 37 transactions totaling $205million in 2010.• This increase was largely driven by large transactions in LAC as well as DFI investments in India.• 29 investors including asset managers of MIVs and DFIs provided data (see Annex for full list). 8
  • 9. Forward book value multiples contract to its lowest level since 2008 Historical Valuation Breakdown   Historical P/E*     Forward P/B Year Average Median       Average Median 2005 9.1 7.9       1.1 0.9 2006 8.5 7.3       1.0 0.9 2007 10.4 7.2       1.2 1.0 2008 10.3 8.1       1.4 1.1 2009 12.8 13.0       1.7 1.4 2010 20.1 23.4       1.6 1.4 2011 11.4 11.3       1.4 1.2 *2011 calculations reflect data from 44 transactions where valuation information was provided for both Historical P/E and Forward P/BV Source: CGAP Research, Global Microfinance Equity Survey 2012.• P/E multiples have reversed since its 2010 peak, while P/B multiples decreased.• The key contributing drivers to the contraction in valuation multiples were continued uncertaintiesabout asset quality seen in some markets since 2009 and the ongoing regulatory uncertainties inIndia.. 9
  • 10. Secondary issuances continued to dominate, but at a slower pace Volume of Transactions by Type of Deal Source: CGAP Research, Global Microfinance Equity Survey 2012.• In 2011, the secondary markets represented 56% of total transaction volume in USD terms, adecrease from 69% in 2010.• LAC captured the most volume of secondary issuance.• Primary issuance on the other hand grew more than 13% (from 31% in 2010 to 44% in 2011). 10
  • 11. LAC experienced the largest median transaction size Median Transaction Size Source: CGAP Research, Global Microfinance Equity Survey 2012.• Overall median transaction size was $1.5 million.• LAC has the largest median transaction size at $2.64 million and has been increasing since 2009.• SSA and Asia have continued to decrease since 2010.• ECA remained at the same level as in 2010. 11
  • 12. REGIONAL AND COUNTRY SPECIFIC TRENDS
  • 13. LAC accounts for more than half of the total amount of equity investments Regional Share of Microfinance Equity Investments (Volume $) Source: CGAP Research, Global Microfinance Equity Survey 2012.• LAC had the largest share of capital flows with Peru contributing over 70% to the region.• Asia had the 2nd largest amount of PE investments, 92% of which was from India.• SSA experienced the highest growth in investments - more than tripling its share of PEinvestments, since 2009. 13
  • 14. Peru experienced some of the largest number and volume of investments Key acquisitions in LAC Countries with the most deal activity 4-yr avg 2011 Transaction Total # Transaction P/B avg P/B Date Target Acquirer Amount Country Transactions Amount (fwd) (fwd) Compartamos 2011 Financiera SAB de CV Jun Crear (Peru) (Mexico) $63mn Peru 10 $116.5mn 1.5 1.8 Fondo Fundación 2011 Esperanza Microfinanzas May (Chile) BBVA (Spain) $13mn India 19 $88.4mn 2.0 1.9 Financiera Fundación 2011 Confianza Microfinanzas Apr (Peru) BBVA (Spain) $33mn Mongolia 7 $7.7mn 1.3 1.0 Source: MicroCapital Monitor. Source: CGAP Research, Global Microfinance Equity Survey 2012.• The bulk of the investments in LAC were capital flows from established microfinance playersgrowing into new international markets as majority shareholders.• Other countries with the most deal activity included India and Mongolia.• Together, India and Peru made up 70% of equity investments in 2011. 14
  • 15. India dominates investments in Asia (92%), but lower valuations indicate continued impact of the crisis Majority of investments are made by DFIs India: Median Average Expected P/B Source: CGAP Research, Global Microfinance Equity Survey 2012.• 19 India deals were closed and priced-totaling over US$88mn vs. 10 deals over US$45mn in 2010• 74% of India Investments in terms of volume came from DFIs.• Average and median multiples of price-to-book value dropped in 2011.• This was likely impacted by distressed portfolios of several MFIs (especially in Andhra Pradesh). 15
  • 16. ECA was the only region to experience an increase in average valuations Historical Valuation Breakdown by Region Average Forward P/BV # of Deals    2005 2006 2007 2008 2009 2010 2011 2011 Africa 0.6 0.8 1.5 1.5 1.0 1.1 0.8 5 Asia 1.3 1.7 1.5 1.5 1.9 1.8 1.8 19 ECA 1.1 1.1 1.0 1.6 2.1 0.9 1.1 10 LAC 1.2 0.8 1.0 1.2 1.2 1.5 1.4 10 Source: CGAP Research, Global Microfinance Equity Survey 2012.• SSA and LAC showed lower average valuations in 2011, Asia remained stable while ECA showeda slight increase compared to 2010. 16
  • 17. SECTION IIPUBLIC EQUITY LIFI INDEX
  • 18. LIFI INDEX• Definition: LIFIs are publicly traded commercial institutions that provide financial services to customers who overlap significantly with those of MFIs—the lower income population in emerging markets. LIFIs do not necessarily have an explicit social agenda, and their loan portfolios tend to feature more consumer loans than microenterprise loans.• Methodology: The companies selected as LIFIs must meet the following conditions: offer financial services; serve the low income segment of the populations and are listed on an exchange, with daily liquidity of at least US$0.1 million• Data Sample: The Index represents a sample of 11 publicly traded lower income finance institutions (LIFIs). 18
  • 19. Country breakdown: Indonesia makes up over 50% of the LIFI Index Country breakdown of the LIFI Index Stock breakdown of the LIFI Index• The LIFI Index is a market cap-weighted index of 11 companies from various geographies, andbusiness models.•The breakdown is different from the breakdown on the PE market. 19
  • 20. LIFIs outperformed global financial institutions and emerging market banks LIFI Index Outperformed Other Banks Annualized performance of indices over Indices since Inception (Nov-2003) four time periods: LIFI outperforms LIFI MSCI World MSCI EM Index Financials Banks Since Launch 26% -3% 13% (Nov-03) Since Pre crisis 6% -14% -4% peak (Nov-07) Since Lehman 20% -6% 7% (Sep-08) Since AP crisis -4% -2% -9% (Oct-10) Source: J.P. Morgan, Bloomberg, as of April 24, 2012. The index is set Source: J.P. Morgan, Bloomberg prices as of April 24, 2012. with a value of 100 in November 2003• The LIFI Index mostly outperformed global financial institutions and emerging market banks asmeasured by the MSCI World Financials Index and the MSCI EM Banks Index.• This is also evidenced by the compound annual growth rate (CGAR) table above. 20
  • 21. LIFIs maintained performance over last 9 years Annualized performance of indices for each year (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD LIFI Index 108% 10% 53% 14% -42% 93% 46% -13% 13% MSCI World Financials 15% 9% 21% -11% -56% 28% 2% -21% 11% MSCI EM Banks 39% 32% 32% 23% -53% 83% 17% -24% 10% Source: J.P. Morgan, Bloomberg, prices as of April 24, 2012. We highlight the top performing index for each year. * year-to-date (YTD) performance..• The annual performance table above displays that LIFIs outperformed World Financialsand EM banks for six of the nine years since 2004, all but 2005 and 2007. 21
  • 22. South African and Indonesian stock markets in LIFI index outperformed global markets Performance of the underlying stocks in the LIFI Index (since July 2011) Source: J.P. Morgan, Bloomberg data since July 1, 2011, as of April 24, 2012. ABL: African Bank; CPI: Capitec; COMPARC*: Compartamos; FINDEP*: Financiera Independencia; BBRI IJ: Bank Rakyat Indonesia; BDMN IJ: Danamon; BTPN IJ: Tabungan; IPF: International Personal Finance; FCFS: First Cash Financial; SKSM IN: SKS; EQBNK KN: Equity Bank.• The top three performers since 1 July 2011 were Capitec (South Africa, +42 percent), Danamon(Indonesia, +19 percent), and Tabungan (Indonesia, +13 percent).• The top three underperformers were SKS (India, -69 percent), Findep (Mexico, -51 percent), andCompartamos (Mexico, -33 percent). 22
  • 23. The LIFI index has higher earnings and book multiples than traditional global banks Valuation summary: Comparing the LIFI index with traditional banks Source: J.P. Morgan, Bloomberg estimates, prices as of April 24, 2012. ADTV = average daily trading volume for the past three months; EPS = earnings per share; ROE = return on equity.• The LIFI Index currently trades at 13.5x 2011A earnings and 2.7x 2012E book value- representinga higher earnings and book multiples than traditional global banks.• The LIFI Index average expected return on equity (ROE) remained stable at 27 percent.• Book value valuations contracted from 4.2x in last year’s edition to 2.7x using most recent data. 23
  • 24. CONCLUSION
  • 25. Conclusion• Overall the microfinance PE market grew, experiencing the largest flow of capital reported to date at $292 million ($382 million was actually reported $292 million represents eligible transactions).• The key contributing factors to this growth included: several large transactions in LAC, expectations of an improved regulatory environment in India; and lower valuations in most regions except in ECA.• There was a contraction in multiples for MFIs and LIFIs. The forward book value multiple dropped to an average of 1.4x book value from a high of 1.7x in 2009. This suggests continued impact of the crisis persists.• We project 2012 valuations to remain stable in most markets except SSA and certain countries in LAC which could result in an increase in valuations. 25
  • 26. APPENDIX
  • 27. Survey Participants, 29 MIVs and DFIs• Aavishkaar Goodwell India Microfinance • Fundación Microfinanzas BBVA Development Company • Incofin Investment Management• ACCION • MicroCred• Advans SA SICAR • MicroVentures Investment SICAR• BlueOrchard Investments • MicroVest Capital Management, LLC• CAF Development Bank of Latin America • Norwegian Investment Fund for Developing• Caspian Advisors Private Limited Countries (Norfund)• Compartamos SAB de CV • Norwegian Microfinance Initiative AS (NMI)• Creation Investments Capital Management, • Omidyar-Tufts Microfinance Fund LLC • OXUS Group• Developing World Markets (DWM) • PROPARCO• Développement International Desjardins • Prospero Microfinanzas GP (DID) • responsAbility Social Investments AG• Elevar Equity, LLC • Solidarité Internationale pour le• European Bank for Reconstruction and Développement et l’Investissement (SIDI) Development (EBRD) • Triodos• FINCA • Triple Jump B.V• FMO, Netherlands Development Finance Company 27
  • 28. Advancing financial access for the world’s poor www.cgap.org www.microfinancegateway.org