A Fundamental Valuation of Prosafe SE

Thomas Scott Lie

Student thesis: Master thesis

Abstract

The main objective of this master thesis is to conduct an in-depth strategic and financial analysis of Prosafe SE (hereafter referred to as Prosafe), and subsequently investigate a variety of valuation approaches and models to determine its fair value. Established in Norway in 1997, Prosafe is the largest owner and operator of semi-submersible accommodation vessels in the world with global operations and experience. Based on strong market outlooks given historically high oil prices, increasing demand for their services and significantly higher E&P spending by the oil and gas industry, Prosafe ordered and commenced the building of 4 new vessels in the period between 2011-2013 with expected delivery during 2015 and 2016. The current market outlook, however, is quite different as oil prices went from trading steadily over 90USD/bbl over the last 4 years to dropping under 50USD/bbl during the autumn of 2014. This development has severely impacted Prosafe’s operations and profitability and has resulted in Prosafe’s share price plummeting to half of its trading price during 2014. Nevertheless, Prosafe has shown great resilience in the market by restructuring their debt and exploring potential new markets. The restructuring of their debt portfolio facilitates funding for the new incoming vessels as well as the refurbishment of some of the older vessels in the existing fleet. This allows Prosafe to offer current and emerging markets one of the youngest and most versatile semi-submersible accommodation fleets in the industry. After undertaking a comprehensive strategic and financial analysis of the company, it is clear that the company is performing well despite the prevailing trends in the market, and is able to utilize their market position and reputation to maneuver the market in the best possible way. However, given the surplus of semi-submersible accommodation vessels going forward and the indicated decreased spending by the oil and gas industry, Prosafe will be faced with the challenge of reviving the historic demand for their services. This indicates slower growth prospects for Prosafe, and as a result, the profitability margins will most likely remain fairly stable in the years to come. After carefully reviewing ‘Real Option Value’ theory and its applicability for this thesis, it is my conclusion that there is no significant real option value attached to Prosafe’s stock. As a result, the more deterministic valuation models such as the ‘Discounted Cash Flow Model’, ‘The Economic Value Added Model’, ‘The Dividend Discount Model’, ‘The Equity Approach Model’ and the ‘Relative Valuation Approach’ are used to determine the share price. The conclusion drawn from using these models is that Prosafe is slightly undervalued as of May 1st 2015 with a target price of 28NOK, the only exception being the ‘Relative Valuation Approach’, which presents inconclusive and insubstantial results. With an observed price of 26.8NOK on May 1st 2015, the estimated target price signifies that the market is currently undervaluing Prosafe’s share price by approximately 5%.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2015
Number of pages99