Financial and Strategic Valuation of Lundin Petroleum AB

Victoria Mattsson & Ludmila Cebanov

Studenteropgave: Kandidatafhandlinger


The aim of this thesis is to find the fair share price of Lundin Petroleum AB on the 1st of April 2014. Lundin Petroleum is a Swedish company operating in the oil and gas exploration and production industry with operations all over the world. The Lundin share was listed on the Stockholm Stock Exchange in 2001 and has so far been an exceptional stock to have in an investor’s portfolio. The stock grew by 2 459.6 % from its listing in 2001 to the valuation date 1st of April 2014, far outperforming the average stock on the Stockholm Stock Exchange. To assess the fair value of the stock, an in-depth analysis of the company was carried out from a strategic and financial perspective. The strategic analysis, including a PESTEL and a Porter’s five forces framework revealed general characteristics inherent to the environment in which Lundin operates and underlined the challenging external factors influencing its performance. Factors with the highest impact on the future evolution of the entire sector include pressure from renewable energy sources, higher competitiveness from alternative fuels such as shale gas and an interplay of economic, financial and political forces. On the other hand, the strategic analysis focused on the company itself revealed that Lundin holds crucial strengths such as internal know-how, good track record in exploration and discoveries and valuable assets promising future oil and gas. The financial analysis assessing the financial performance of the past 5-years revealed that the company managed to evolve from a negative to a positive net income and managed to secure a considerable amount of financing that will both help support its future endeavours by continuing investments but also adds higher financial risks to its operations through a heavy debt burden. The results of the strategic and financial analysis was then used to make a realistic 10-years forecast of Lundin’s performance. The forecasted cash flow was discounted by using the DCF method obtaining a value of 18,89 USD per share, indicating that the current market is slightly overvaluing the Lundin stock. To sanity check the calculated share price a sensitivity analysis was done assessing the sensitivity in the assumptions driving the resulting share price, showing that changes in the oil price and WACC are the biggest factors affecting the Lundin price. To triangulate the share price a multiples analysis was conducted showing that the most applicable multiple to this particular industry – the EV/EBITDA – also reveals the closest result to the DCF valuation and to the market price. In contrast other multiples, that were used for comparison purposes revealed much higher variations around these values. Although there are many factors that can affect a stock’s price in the future and many of the influencing variables are extremely hard to predict, the report concludes that the stock price today is slightly overvalued.

UddannelserCand.merc.fsm Finance and Strategic Management, (Kandidatuddannelse) Afsluttende afhandling
Antal sider167