Strategic and financial analysis and valuation of B&O

Abstract

The thesis is conducted on theory obtained at Cand Merc Applied Economics and Finance. Through systematic strategic analysis, the qualitative issues affecting B&O have been established and the conc lusion is that the current macro economic situation has a negative impact on B&O with general insecurities about future sales for B&O and more specifically in terms of currency risks just to name a few. On the industry level B&O faces competition from competitors eager to take over market shares from niche market leader B&O. On the supplier bargaining side B&O is weak towards especially one supplier, however on the consumer bargaining side, B&O stand stronger. The company level analysis showed that the biggest negative factor for B&O was its product portfolio, which has not lived up to market demands and thus negatively affected B&O’s bottom line. B&O however also has a unique concept with the BeoLiving, integrating many of B&O’s products which in turn ge nerate more sales. B&O’s historic key figures have all been decreasing from the fiscal year of 2006/07 to 2007/08 and for the most part peaking in 2006/07 for the period analysed. With the world economy in a strong recession, the historic key figures have only been used as a starting point for the forecasting period and an indicator as to where the company is expected to be heading after the crisis ends in the terminal period. Furthermore the author has reclassified the NIBD to include other debts and thus getting a significantly higher financial gearing than the one derived at by B&O, which affect the following forecast and valuation conducted in this thesis. The fair value of B&O as of 31st March 2009 is found to be 84 DKK per share in both the DCF and EVA models. The estimated fair value is compared to the observable price of 71 DKK per share. This gives a BUY recommendation of B&O. The fair value is seen against a multiple comparison analysis, comparing B&O to selected peers. To verify the estimated share price a sensitivity analysis has been conducted on the main critical valuation inputs, in particularly WACC and beta, to which the fair value was sensitive.