Valuation of Danfoss A/S

Abstract

The purpose of this thesis is to estimate the enterprise and equity value of the privately held Danish industrial company, Danfoss A/S, as of April 30, 2025. The valuation is conducted in the context of Danfoss’ internal employee share program, which necessitates an annual pricing of company shares despite the absence of public trading. A comprehensive strategic analysis, comprising a PESTEL framework and Porter’s Five Forces, is conducted to identify the macroeconomic and industry-specific factors influencing Danfoss' competitive positioning. These findings are supplemented by a detailed financial statement analysis and reformulation of Danfoss’ financial reports from 2017 to 2024. Based on the identified financial drivers, future performance is forecasted over a 10-year budgeting period, reflecting the need to allow for post-acquisition normalization and recovery from recent macroeconomic disruptions. A weighted average cost of capital (WACC) of 7.99% is estimated, accounting for Danfoss’ private ownership structure, the absence of a public beta, and limited debt disclosures. The valuation is carried out using both the Discounted Cash Flow (DCF) model and the Residual Operating Income (ReOI) model. These two models converge on an enterprise value (EV) of DKK 170.3 billion and an equity value of DKK 149.0 billion. To assess the robustness of the valuation, a sensitivity analysis is performed, varying key assumptions such as the WACC, the terminal growth rate (g), and the equity risk premium (ERP). The analysis demonstrates that modest changes in these parameters lead to significant fluctuations in the final valuation, highlighting the importance of transparent and empirically grounded assumptions when valuing a privately held entity. Finally, a multiple-based valuation based on a peer group of listed companies is used as a benchmark, confirming the plausibility of the intrinsic valuation results.