UK companies severely undervalued, new report claims

budgetA joint report from Brand Finance with the Chartered Institute of Management Accountants (CIMA) shows that companies have more than $1.58 trillion (€1.5 trillion) of assets unaccounted for, and calls for valuation of the UK’s ‘intangible assets’ and a debate about policy change.

Unveiled at this morning’s The Value of UK plc event, hosted by CIMA and leading valuation consultancy Brand Finance, the Global Intangible Finance Tracker (GIFT) report highlights how a collective blind spot for business decision makers and policy makers has been allowed to develop.

The comprehensive annual study of 58,000 companies across 120 stock markets, reveals that since 2012 undisclosed intangible value has grown 50% to $27 trillion (€25.5 trillion). It now accounts for more than a third of the average firm’s enterprise value, rising as high as 70% in sectors such as pharmaceuticals and advertising. It also shows that failing to account for intangibles favours short-term economic gains over long-term value and undermines service-sector dominated economies such as the UK. According to the report, failure to effectively account for intangibles risks the undervaluation and acquisition of strong brands such as Cadbury’s or Astra Zeneca.

David Haigh, CEO of Brand Finance said: “This report challenges those leading the debate on our national economic policy. This is an issue which needs a speedy resolution to avoid further national treasures like Cadburys being left to the mercy of foreign buyers and taken over for less than they are worth.”

“The issue of inaccurate intangible asset value reporting rose to prominence in the M&A boom of the 1980s. After 30 years of arcane debate among accounting standard setters, and despite huge strides being made in valuation techniques and standards, we enter the next great M&A boom, of which the huge BG, Shell deal is just the latest example, with financial accounts which still fail to explain intangible asset values to stakeholders.”

Charles Tilley, CEO of CIMA added: “It is time for the implicit acknowledgement of intangible value to be made explicit. Value is worth that can be exchanged, this depends on a fair exchange of information between the two parties leading to fair valuation for buyers, sellers, investors and wider society. The new global management accounting principles provide a framework for communicating an organisation’s true value and consequently they help UK businesses get a fair deal at the negotiating table.”