A Valuation of Norske Skogindustrier: A Strategic and Financial Analysis

Henrik Hartwig

Student thesis: Master thesis


The objective of this thesis was to assess the fair value of the NSG stock per 17.07.2013. The fair value assessment was facilitated through the establishment of a strategic and financial analysis, enabling the provision of a reliable forecast budget. NSG is recognized as a world leader in the paper industry, yet the shareholders of the company have experienced an immense decline in equity since mid 2007. The cyclical characteristics of the industry combined with the recent financial crisis affected publishers earnings potential due to lower circulation as well as ad-spending levels, thereby influencing NSG’ total supply of newsprint and magazine paper. The company has been forced to discard the global playing field, rather emphasize Europe and Australasia as main markets of interest. These are characterized as advanced economies where positive growth in demand is not expected to occur. Mainly this is supported by the rise of digital mediums and where the competition in Europe is considered to put NSG at test. However, even though it is reasonable to expect that demand for newsprint and magazine paper will decline in the nearest future, it is believed that printed and digital media will live side by side in the future, thereby signaling a minimum need for NSG’ product range. The European reference price for newsprint has proven to be strongly market driven, seen in light of few possibilities to diversify as well as the current state of oversupply. However, some of NSG’ closest competitors have announced capacity closures and potential seeking in growth markets, which is believed to stimulate price improvements for NSG in Europe. Announced efficiency programs, low future capital expenditure frame, as well as witnessed capital efficiency improvements, are some of the key elements defining the expected model of the company. This is opposed to the “as 2012” model where NSG will end up in bankruptcy if necessary initiatives and actions are not taken forward. The valuation of NSG was primarily conducted based on a present value approach, supplemented by a sensitivity analysis which proved that the estimated market value of equity is quite sensitive to different levels of WACC. The present value approach was also supplemented by a relative valuation approach based on the application of multiples, however the main findings derived from the DCF-model was not supported. This may stem from the lack of comparability among the selected peers, which is considered to be an important criterion when applying such a valuation technique. Among others it was proven that NSG has a less diversified product portfolio compared to their peers. The theoretical equity value was found to be NOK 9.43, based on the findings presented in the expected model. The NSG stock was traded at Oslo Børs on the 17.07.2013 at NOK 2.85. This signals a significantly optimistic assessment of NSG’ future cash flow potential and risk compared to the expectations of the market at the time, indicating an underrated stock in the market.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2013
Number of pages98