Ingi Jarl Sigurvaldason & Jens Jónsson

Student thesis: Master thesis


State Owned Enterprises (SOEs) constitute a sizable part of the business life in many countries, where they often have a monopolistic market position on markets that are heavily influenced by politics. Thus, efficient and professional corporate governance practices are essential to ensure that these companies are controlled with best intension and for the right reasons. In this thesis the largest electricity producer in Iceland, Landsvirkjun (LV), is analysed from many perspectives to create a comprehensive overview of the company’s operations, its governance and the environment that it operates within. The focus of the analysis is LV´s environment, macro and micro environment, its financial condition and its corporate governance practices. Based on strategy and financial analysis a financial forecast is created from which LV´s equity value is then derived from. To analyse LV´s environment PEST analysis, Porter´s 5 forces and a SWOT analysis are applied. The environmental analysis concluded that even though the electricity market in Iceland is promising, its structure has several negative aspects. In order to analyse LV´s financial condition, financial ratios are applied and compared to LV´s peer group which includes four firms which were chosen after some consideration. From this analysis it is concluded that LV is financial condition is inferior to its peers. To estimate LV´s equity value two models are applied, these are the DCF model and the ReOI present value based models. From these two valuation models it is concluded that LV´s equity value is worth 1.7 billion USD, that is 10% over the reported value of equity. The analysis of LV´s corporate governance concluded that LV lacks a framework to operate within and that LV´s owners seem oblivious about the importance of good corporate governance practices.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2010
Number of pages130