Om SARD-metodens præcisionsgrad ved anvendelse på virksomheder fra de nordiske markeder

Jeppe Vilstrup Juhl & Oliver Almlund Christensen

Student thesis: Master thesis


This thesis seeks to address the precision of the ‘Sum of Absolute Rank Differences’ approach (SARD) regarding multiple valuation estimates for the companies in the Nordic countries. SARD is a tool to specify peers for multiple valuation based on fundamentals associated with profitability, risk, and growth, as these are shown to be the primary value drivers behind the applied multiples both theoretically and empirically. This thesis tests the approach on the relatively smaller firms of the stock exchanges belonging to the Nordic countries.
The thesis is based on a European dataset consisting of four MSCI-indices plus all firms listed on the stock ex-changes for Denmark, Finland, Norway, and Sweden for the period 2002-2019. It is empirically tested throughout the thesis if SARD is superior to a benchmark based on industry selection. The Nordic stock exchanges have a relatively high number of small firms listed and it will be examined if the smaller firms are resulting in higher estimation errors than larger firms when using SARD. Furthermore, the approach will be tested for the Nordic countries individually with varying peer-pools, to see which ones is preferred in each case. Lastly, SARD is tested in combination with an industry-based selection model, where SARD is tested within industries.
It is shown that SARD, independent of peer-pool, yields lower estimation errors than the industry-benchmark for all the Nordic countries, which emphasizes the justification of SARD in general. The findings for the smaller firms are not as promising as the corresponding findings for the larger firms. The valuation errors are higher for the very small firms, although SARD still yields more accurate estimates than the industry-benchmark. The reason for this is primarily found to be the various issues associated with valuing small firms. The third finding regarding the selection of the best peer-pools for valuing firms on the Nordic stock exchanges are slightly more ambiguous. Overall, the findings are that the valuation estimates are most precise when the firms are valued based on a European peer-pool, although it is not the case for Norway. This is most likely due to the very specific and narrow distribution of firms within few sectors in Norway. Lastly, it is found that the valuations of the Nordic firms are not necessarily enhanced with the use of a combination of SARD and an industry-based approach, which is opposite of findings from previous studies. It seems, the combined approach takes a larger peer-pool than the dataset provided in this thesis, for it to be better than SARD across industries. SARD is generally found to be promising when it comes to selection of peers on the Nordic markets.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2020
Number of pages147
SupervisorsThomas Plenborg