Higher Prices

Our primary observation is that the post-covid economic environment saw higher prices paid for used P&E assets on the market, followed by higher value opinions established by valuers. This will benefit both borrowers and lenders.

Since the second half of 2021, when the pandemic lost its initial sting, the market (in Australia and globally) has seen significantly higher prices paid for used P&E assets. That of course is not unique – and we have certainly seen periods of higher values before. But what is different this time is that whereas higher used equipment prices would typically be anchored by correspondingly high prices for new equipment, that was not the cause of the current valuation spike. In fact, prices for new OEM equipment were steady, a function of customer relationship management and lag time in passing on cost increases. OEM manufacturers are not typically opportunistic and are certainly hesitant to be branded as such.

The used equipment price spike

Rather, the higher used equipment values in 2022 are a function of:

• Lack of equipment supply
• Lead times on supply of new equipment
• Current economic activity
• Uncertainty in the future (Companies buying old over new)

Our observations of the market lead us to believe this dynamic will be in place for some time – promoting continued higher used prices and valuations.

New equipment prices

Having said that OEM manufacturers are not opportunistic, and did not ramp up prices during the pandemic, there are factors that are now clearly increasing the cost of new equipment – inflation (in commodity prices, downstream steel products, labour and fuel) is starting to push up the price of new equipment, which will only combine with the post-covid factors to keep used equipment values high.

Impact on borrowers and lenders

This is good news for companies wanting to borrow against their assets of course – higher valuations provide them with greater availability and access to cash albeit at higher interest rates. They can leverage their assets to fund increased investment for business growth.

For lenders, the emphasis is very firmly on the need for accurate valuation reports to give them confidence in providing the investment to support these businesses. We have certainly seen an increased demand for timely and accurate collateral valuation reports that support negotiations and provide lenders with deep insight into the asset class and the associated risks facing the business and industry within which they operate.

Valuations in the ‘new normal’

The pandemic turned the business world upside down, and even as we move out of the crisis, we can see that things are very different to ‘life before COVID’. The economic landscape has changed, and we’re living in and learning about the ‘new normal’. Part of that new normal is changing asset values.