Strategic Financial Analysis and Valuation of Lerøy Seafood Group

Alexander Løes Nilsson

Student thesis: Master thesis


The objective of this thesis is to estimate the stand-alone value of one share of Lerøy Seafood Group (LSG) as of 27/05/2014. In order to find the fair per-share value, I have conducted an in-depth strategic- and financial analysis on the company. These analyses have identified significant value-drivers for both revenues and costs, which will serve as foundation for the forecast. The strategic analysis is divided into sections regarding specific revenue- and cost drivers essential to the forecasting, in addition to an industry- and macro analysis that reveal factors which influence the company. The valuation is based on two methods; the present value method and market based multiples. The present value method includes the Discounted Cash Flow model and Economic Value added model. To support these results, I have conducted a multiple analysis inspired by industry practices, including sensitivity- and scenario analysis. The strategic analysis revealed that the main revenue drivers are growth in harvest volumes, salmon spot price and the premium above the salmon spot price that LSG can claim on its processed products. The cost of materials is identified as the most important cost driver, which is largely influenced by the price of fish feed. There has been a significant consolidation trend in industry which is also expected to continue. LSG is financially well positioned to participate in the industry’s merger and acquisitions activities. There are limited organic growth opportunities in the salmon farming industry as the capacity limit per license restricts further utilization improvements. However, the market outlook is bright, as weaker supply growth and a strong demand support higher salmon prices. LSG is a wholly integrated Norwegian seafood company with its core business in salmon farming, but also has significant downstream activities such as secondary processing and a substantial sales & distribution network. The group’s downstream activities give LSG close access to the end-customer, which greatly improves product development and innovation. The significant secondary processing division gives LSG the possibility to sell its products with a premium. LSG is considered to have a solid and flexible financial position with an impressive historical performance. Based on the analysis in this thesis I find LSG to be an attractive long-term holding. The present value models estimate NOK 222 stand-alone value of one share of LSG, indicating an upside potential of ~12%. The current price does not offer a large margin of safety. However, as LSG is a quality company with a strong financial position in an industry with good prospects for the future, it should offer reasonable returns as part of a long-term investor’s portfolio.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2014
Number of pages128