Valuation of IC Companys: An insight into the estimation of long-term value of companies

Stine Birk Hansen

Student thesis: Master thesis


The purpose of the thesis is to provide insight into how an investor can estimate the long-term value of a company in order to compare this with the current market price and evaluate whether this is a true measure of the long-term value of the company. This is done through a valuation based on a present value approach and the Danish fashion company, IC Companys, has been chosen to undergo a valuation to make the thesis as applicable for an investor as possible. Through a strategic analysis of the macro- and micro environment and an analysis of historical profitability of the company, a forecasting of future performance is made and pro forma statements are constructed. These statements provide the input needed for the valuation. This is performed using the DCF and the EVA valuation models and the result is an estimated price per share of DKK 169.1. As the results of the two models reconcile, it follows that the basic assumptions behind the application of the models are fulfilled. This estimated price is then compared to the actual market price on 31 October 2013 which is DKK 149. If these prices are compared in isolation one could come to the conclusion, that the market price is not reflective of the long-term growth of the company since it is undervalued by investors. Before making this conclusion the sensitivity and reasonableness of the estimated price is first tested. This is done partly through a sensitivity analysis, where the effect of changes in important value drivers on the result is tested. This analysis reveals that even small changes, which cannot be considered to be unrealistic, have a relatively large effect on the estimated price. This indicates that making the above conclusion of an undervalued company may be incorrect. The estimate is thus further tested by comparing the result to a multiple valuation, which is a relative valuation method that relies on the relative pricing of peers’ earnings. The result of this analysis reveals that the actual price per share may actually be DKK 151.1 or even lower since ICC appears to be trading below the industry average. Combining these results indicate a market price that is not far from the long-term value of the company that is estimated throughout this thesis, which is also the interpretation of the results made by the author. This conclusion illustrates that the answer to the research question to a high extend rests with the assumptions and expectations by the person performing the valuation. The tools and methodology presented throughout the thesis merely frames how a thorough valuation can be performed, but the result will always be sensitive to the input applied, and the interpretations of the results will depend on the person making them.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2013
Number of pages125