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I agree. Perhaps another reason why not to use an 8.8x multiple.

My view is that 8.8x at least has a rational justification and does not presuppose
any any overoptimistic degree of specialness for the business units.
It's what I'd use for conservatism, and argue you never need to use a
multiple that's lower than that provided you have done a cyclical
adjustment on the earnings as necessary. One might say that the prudent
range of sensible multiples varies from a low of 8.8x up to ???x.
The ??? is purely a function of how optimistic you're feeling now versus
how bad you'll feel later if you have overestimated.

Personally I wouldn't go above 10x; if they're worth more than that,
I'd rather be pleasantly surprised. Assuming a 35% tax rate, 10x
current on-trend cyclically adjusted earnings represents a 13% premium
to the average multiple of the average US company in the average year.
That would seem pretty justifiable without danger of being overly optimistic.
Plus, more importantly, it's a nice round number.
So, I guess you could put me down as a "8.8x to 10.0x" man.

Incidentally, a premium multiple of earnings is more justifiable than
a premium multiple to book for the same units because it automatically
underweights those with low returns on equity (NetJets anybody?) and
heavily weights those that are disproportionately profitable.

Jim
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