{"id":445,"date":"2024-08-20T11:30:43","date_gmt":"2024-08-20T11:30:43","guid":{"rendered":"https:\/\/athlavaluations.com\/blog\/?p=445"},"modified":"2024-08-19T13:14:00","modified_gmt":"2024-08-19T13:14:00","slug":"should-sunny-weather-be-considered-in-a-valuation-exercise","status":"publish","type":"post","link":"https:\/\/www.athla.co.uk\/insights\/should-sunny-weather-be-considered-in-a-valuation-exercise\/","title":{"rendered":"Should (sunny) weather be considered in a valuation exercise?"},"content":{"rendered":"

There are macro factors and mega macro factors which need to be thought about in a company valuation<\/p>\n

As I gaze out of my window at blue skies and the sun shining, it made me think that we don\u2019t often talk about whether the weather matters when thinking about a company valuation.<\/p>\n

Given that climate factors are a major factor when it comes to the value of physical assets, it\u2019s obvious that they should also matter when it comes to businesses and their shareholdings.<\/p>\n

Now I think about it, it\u2019s a pretty big topic.\u00a0 So let\u2019s try to summarise the issues.<\/p>\n

    \n
  1. Some companies thrive when the weather is bad or when it is good. For some it does not matter.\u00a0 But I heard a great story the other day about how the weather can actually help to predict future commercial performance.\u00a0 It was from a company involved in construction which mentioned that 18 months after a serious drought the problems that manifest around subsidence appear and work picks up accordingly.\u00a0 Food for thought methinks when examining a company\u2019s forecasts upon which we are relying to perform a valuation.<\/li>\n<\/ol>\n

    As my colleague David Livesley said when I mentioned I was writing about this:<\/p>\n

    \u201cI love the US markets in fruit and nut futures. \u201c<\/em><\/p>\n

    Orange juice futures \u2014 which allow industry players to hedge against swings in prices \u2014 have been on a tear since the end of 2022 when a hurricane, then a cold snap, devastated acres of orange groves in Florida, the main growing region in the US, the world\u2019s second-biggest producer. But the rally has accelerated sharply this month as the prospect of a dismal harvest in Brazil has panicked the market.\u201d<\/p>\n

    https:\/\/www.ft.com\/content\/31400087-5749-4cbe-94ee-5ad87b1bb9aa<\/a>\u201d<\/em><\/p>\n

    There are lots of clues in data readily available to understand whether a company\u2019s value should be enhanced or impaired.<\/p>\n

      \n
    1. Energy: I do not need to go over well trodden ground about Net Zero Goals et al.\u00a0 But for companies where energy usage is an issue, this impact on costs and that impacts on profits and therefore valuations.<\/li>\n
    2. ESG: too often the E, S and G are lumped together.\u00a0 We think Governance comes first, because if that is done correctly everything else will follow.\u00a0 In some companies we discover that the governance over environmental factors\u00a0 could be better.\u00a0 Perhaps this is a clue about the values of the senior leadership team?<\/li>\n
    3. Regulation and reporting: If it has not already arrived in relation to the environment, we all know the direction of travel, we need to consider what impact compliance with the regs has on not just profitability (the \u00a3 and time costs of compliance) but also how it might impact more widely on the company\u2019s ability to perform against its peers. Does being a B Corp command a premium multiple?<\/li>\n
    4. Insurance. If a company needs weather related insurance it should have it.\u00a0 If the insurance is missing and the risk is high, we need to impair for at least the cost of buying the insurance cover.<\/li>\n<\/ol>\n

      We all know about macro and geopolitical factors such as inflation, interest rates and geopolitical risks.\u00a0 Could it be that \u201cthe weather\u201d is actually a macro macro factor?<\/p>\n

      Whilst we continue to noodle the issue and apply analysis of the risks and opportunities to a valuation exercise, we hope you will be enjoying the sunny weather wherever you are in the world right now.\u00a0 And I hope for many of you, you will be soaking up the sun somewhere nice on holiday.<\/p>\n","protected":false},"excerpt":{"rendered":"

      There are macro factors and mega macro factors which need to be thought about in a company valuation<\/p>\n","protected":false},"author":2,"featured_media":447,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-445","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/445","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/comments?post=445"}],"version-history":[{"count":2,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/445\/revisions"}],"predecessor-version":[{"id":448,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/445\/revisions\/448"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/media\/447"}],"wp:attachment":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/media?parent=445"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/categories?post=445"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/tags?post=445"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}