Valuation of Grieg Seafood

Anders Brun Birkeland & Fredrik W. Sandberg

Studenteropgave: Kandidatafhandlinger


The purpose of this thesis is to find the fundamental value of the Norwegian fish farming company Grieg Seafood, trough a financial and strategic analysis. The fish farming industry has experienced tremendous growth the last decade and has become a significant contributor to Norway’s economy. Due to an overexploitation of the wild fish stock, the aquaculture In the strategic analysis we observed that biological issues have limited the amount of licenses given to farm salmon. This is expected to lower the production growth rate in the years ahead. Demand on the other hand is expected to increase at its current rate, as continued focus on health is anticipated. As a consequence, we expect prices on salmon to increase in the long term. In the short term however, we expect prices to fall, due to a short term increased global production led by the production recovery in Chile. industry is expected to grow also in the future. Hence, we consider it as both exciting and highly relevant to value a Norwegian fish farming company. The price on salmon and the price on raw materials used for feed are considered to be the most essential value drivers in the industry. The price on raw materials has been increasing by approximately 25 % per year the last 4-5 years. Technological improvements and productivity gains has however helped the industry offset this development. The competitive rivalry in the industry is considered high. Increased consolidation and lower growth rates will intensify this competition in the future. Based on the findings from the financial analysis, we identified Grieg Seafood as the least cost efficient company in its peer group. As prices in the short term are expected to fall, Grieg Seafood margins are expected to drop. As a consequence, the company will struggle to pay its financial obligations in 2013 and 2014, solely with its earnings. The company is however in a good financial state, with a bankroll equaling NOKm 143 ultimo 2010. The company will thereby be able to rely on these funds in demanding years. The valuation of Grieg Seafood was conducted using a DCF / EVA model, supported by a multiple analysis. A WACC of 7,5 % was used to discount the future cash flow. GSFs stock was estimated to be NOK 23,7 on January 1. 2011. The same day the stock was trading at NOK 19,40 indicating a NOK 4,3 or 22 % upside potential. The stability of the estimated stock price was tested through a sensitivity and scenario analysis. The analysis stated that the share price is highly sensitive towards changes in both WACC and terminal value growth. The key take away from the cost-scenario analysis is that the GSF share has a great potential if the company manages to reach similar cost levels as SalMar. Hence, the thesis concludes that it exist unrealized gain in the GSF share. As a final remark, it should be mentioned that the upside potential our fundamental valuation of GSF indicates, is due to our long term optimistic view on the industry, rather than Grieg Seafood’s performance itself. On the basis of our analysis it is clear that the company has major cost issues that most likely will follow the company for the years to come.

UddannelserCand.merc.fir Finansiering og Regnskab, (Kandidatuddannelse) Afsluttende afhandling
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