An Analysis and Valuation of Eiendomsspar AS

Erik Dokka Haug

Student thesis: Master thesis


The purpose of this thesis is to determine Eiendomsspar A/S stock price and eventually determine if the stock is worth buying as of 31st of December 2009. The valuation has been done on the basis on a strategic and financial analysis. Eiendomsspar is a relatively small firm. Its principal activities are ownership and development of properties mainly in Norway and Sweden. The company holds both commercial and residential properties with hotels, office buildings and retail shops accounting for the main part of rental income. In 2005 Eiendomsspar acquired the Swedish property firm Pandox, in a 50/50 split with Sundt A/S, and thereby became a large hotel owner in Sweden. The growth rate for Eiendomsspar has been significant since the founding of the company in 1983 and has in the analyzed period from 2001 to 2009 the stock price has increased by over 800 index points. Eiendomsspar has nonetheless a large debt ratio, which is normal for the industry. However a debt equity ratio just beneath 3 and with 59 percent of the debt up for renegotiations causes an uncertainty for the firm’s future. The strategic analysis has revealed that both the rent prices and RevPAR are bottoming out and are therefore expected to increase in the near future. In addition new projects in the Oslo region are expected to be historical low in the forecasted period. Coming off a two-year period, were the number new projects were extremely high, a low period is essential for the growth in rental prices. The results from the strategic analysis are that the market future is looking bright for Eiendomsspar. As Eiendomsspar’s strategy has been successful up to this point and given Eiendomsspar’s overall financial state, it is both expected and recommended by this thesis that the firm continuous its current strategy. Eiendomsspar has managed thru the difficult financial times the world has experienced the last years. The consolidated strategic-­‐ and financial analysis generated the foundation for a 5-­‐year forecast followed by a terminal period estimating future revenues, investments and costs. Estimating the Weighted Average Cost of Capital is performed by calculating several different factors, a beta of 0.37, a market risk premium of 5.5 percent and a cost of debt of 300bps over the risk free rate, the result was a WACC of 5.36 percent. Using the WACC to discount the company’s forecasted future cash flows and residual income resulted in a theoretical share price when using the Discounted Cash Flow Model and the Economic Value Added Model to 205.87 NOK. The result shows an upturn just beneath 30 percent on today’s value. A sensitivity analysis was later applied to reveal the importance of the factors and eventually how changes in the factors would affect the stock price. The conclusion when analyzing four important factors was that a relative small change would create a large change the stock price. Nevertheless, the upturn is superior compared to the downside.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2010
Number of pages114