Valuation of Nordea: Valuation of Nordea with special focus on Nordea´s activities in Latvia

Niklavs Petersons & Martin Sønderskov Nielsen

Student thesis: Master thesis


The main goal of this thesis was to determine the value of Nordea Group AB, considering the Latvian market. It is relevant to analyze Nordea, as the bank has exposure to Latvia, and due to the Latvian volatility could be under/over valuated. We executed the valuation by conducting a strategic analysis of Nordea, a strategic analysis of Latvia and Latvia´s impact on Nordea, followed by a financial analysis and finally a sensitivity analysis of the valuation. The strategic analysis indicated current and future market dominance in most markets, along with a high concentration in the Scandinavian and Eastern European markets, which means high exposure as well as the forgoing of growth opportunities. The strategic analysis also indicated that Nordea is better prepared for Basel III than competitors, unless the regulations turn out to be harder than expected. Furthermore, the economic recovery in 2010 is expected to bring financial stability and growth to Nordea‟s markets. However, reversal of fiscal stimuli packages could lead to a double-dip and result in worse conditions for Nordea. Finally, Latvia was found, due to its instability, to be the largest short-term threat for Nordea. In-depth analysis of Latvia resulted in the creation of three scenarios for the future of Latvia: a most likely scenario with a negative development for Latvia until 2011, a worst case scenario with devaluation, and a best case scenario with faster global and Latvian financial recovery. Our analysis also resulted in the validation of the connection between macroeconomic developments in Latvia and Nordea‟s asset quality and profitability. The financial analysis showed that Nordea‟s net profits have increased over the past nine years. Compared to its peers, Nordea‟s ROE, ROA and cost/income ratio have developed positively and ranks higher than its peers. The banking sector has been significantly hit by the financial crisis and loan losses have increased; however, Nordea continues to perform relatively better than peers. Through a combination of the strategic and financial analysis combined with the Latvian scenario forecasts, we estimated Nordea‟s stock price to be EUR 8.22 through the RI model with the scenario analysis indicating a range of EUR 7.74 to EUR 9.57 and the sensitivity analysis ranging from EUR 5.16 to EUR 14.14. We also found Nordea‟s P/E to be 13.01, which is low compared to its competitors due to lower loan losses and a high P/B of 1.50, indicating Nordea to be a relatively safe investment. As the calculated stock price, EUR 8.22, is higher than the actual stock price of EUR 7.55 on 14 April 2010, we recommend investors to invest in Nordea.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2010
Number of pages187