Sum of the parts

A single blended multiple applied to a conglomerate hides that it is really several businesses with very different economics. Sum of the parts values each division on the methodology and multiple that fits it, then adds the results and applies the group level adjustments.

The mechanics: value each segment to its own enterprise value, sum them, then subtract group net debt, unallocated central costs capitalised at some multiple, and any conglomerate discount, to reach equity value.

The gap between the sum and the market capitalisation is often the entire investment case. Where a conglomerate trades well below its parts, the argument is that a break up, spin off or disposal would release value, and activist campaigns are frequently built on exactly this arithmetic.

The honest caveats are that segment financials are only as good as the disclosure, central costs are genuinely hard to allocate, and a discount can persist for years without any catalyst to close it.