A petrol-station valuation should not be based on a single turnover multiple or an unsupported asking price. The value of the business depends on sustainable earnings, fuel volumes, non-fuel performance, lease or property rights, capital expenditure, licence position and the risks a buyer must assume.
The purpose of a valuation is to form a supportable opinion from available evidence and stated assumptions. It is not to guarantee the final sale price.
Define what is being valued
First identify the subject of the valuation:
- Operating business
- Shares in the operating company
- Business assets
- Property and business together
- Leasehold interest
- Specific equipment or income streams
The same station can produce different values depending on what rights and liabilities are included.
Verify fuel volumes
Fuel volumes are central to many service-station valuations, but reported litres must be tested.
Possible evidence includes:
- Supplier statements
- Wet-stock reports
- Point-of-sale records
- Management accounts
- VAT returns
- Bank records
- Tank reconciliations
Analyse volumes by product and month. Identify seasonality, trends, unusual spikes and differences between seller reports and supporting records.
Analyse sustainable fuel margin
The value should reflect the sustainable gross contribution generated by the station, not an assumed universal margin.
Consider:
- Product mix
- Supplier and brand arrangements
- Regulated or guideline components
- Rebates and incentives
- Transport or delivery effects
- Card and payment charges
- Wet-stock losses
- Site-specific commercial terms
Measure non-fuel earnings separately
Convenience-store, food, car-wash, ATM, rental and other income may contribute materially to value.
For each income stream, test:
- Sales
- Gross margin
- Direct operating costs
- Franchise or concession fees
- Stock losses and wastage
- Staffing
- Capital expenditure
- Contract duration
Do not apply the same valuation treatment to fuel and non-fuel activities without understanding their different risks.
Normalise the financial statements
Reported profit may include expenses or income that will not continue under a new owner. A normalised assessment can adjust for:
- Owner remuneration above or below market
- Related-party charges
- Once-off legal or repair costs
- Personal expenses
- Exceptional income
- Under-maintenance
- Unrecorded replacement requirements
Every adjustment should be explained and supported.
Evaluate the lease or property position
For a leasehold business, value can be severely affected by limited tenure or unfavourable terms.
Review:
- Remaining lease term
- Renewal options
- Rental and escalation
- Turnover rent
- Assignment and change-of-control restrictions
- Landlord-consent requirements
- Maintenance responsibilities
- Ownership of improvements
Where property is included, separate the property and operating-business components where appropriate.
Assess licence and transaction risk
Confirm the site and retail licence holders, current operating entity and proposed transaction structure. The value may be affected by uncertainty regarding:
- Change of retailer
- Change of ownership or control
- New application requirements
- Licence conditions
- Outstanding annual information
- Supplier or brand approval
- Lease transfer
A buyer may discount value where implementation depends on unresolved approvals.
Identify required capital expenditure
Inspect or obtain specialist advice on tanks, pumps, canopy, shop, electrical systems, generator, car wash, point-of-sale equipment and other major assets.
Differentiate between:
- Routine maintenance
- Deferred maintenance
- Compliance expenditure
- Replacement expenditure
- Growth or improvement expenditure
A station requiring immediate capital investment should not be valued as if all assets are in optimal condition.
Choose the valuation approach
Depending on the assignment and available evidence, a valuation may consider:
- Capitalisation of sustainable earnings
- Discounted cash flow
- Market transactions or multiples
- Asset or property approaches
- A combination of methods
Market multiples should be applied cautiously. A multiple from another station may not reflect the same lease, licence, volume, capital or risk profile.
Use sensitivity analysis
Test how value changes if:
- Volumes decline
- Margins reduce
- Rent increases
- Required capital expenditure rises
- The lease term is shorter
- Non-fuel income underperforms
- Implementation is delayed
Present assumptions and limitations
A professional valuation should identify the information relied upon, verification performed, assumptions used and matters outside the scope. It should distinguish verified facts from seller representations.
UFuel valuation support
UFuel provides petrol-station valuations for sales, acquisitions, funding, partnership matters and strategic decisions. Review the petrol-station valuation service or request a valuation discussion.