Valuation of SAS: Going Concern and Liquidation Perspective

Trym Krogstad & Jardar Rike

Student thesis: Master thesis


Purpose of the assignment: SAS has on several occasions over the last decade been close to bankruptcy. Much due to the state owners, they have been able to survive through governmental support. Therefore, we will in this valuation assignment include a liquidation perspective in order to find out whether SAS AB’s share price is fairly priced. Based upon this, the research question is: “Are SAS AB’s common shares fairly priced on 1 February 2015?” Analytical framework: We will conduct a strategic analysis in order to analyse the external and internal environment that SAS operates in and extract the key value drivers for change. Then we will perform a financial statement analysis, in which we will introduce a peer group. We will reformulate both SAS’ and the peer’s financial statements and make adjustments (for instance to operating leases) in order to make them truly comparable. Thereafter, we assess SAS’ profitability and liquidity against its peer group. The results from the strategic and financial analysis are summarized in a SWOT matrix. Based upon this, we conduct a sales-driven forecast and a valuation based on the implicit forecasting assumptions. The valuation methods will be a discounted cash flow, economic-value added, multiple valuation and a liquidation method. Findings: The airline industry is highly reactive to the macro forces, but the years ahead seems to hold good conditions for the airline industry. The supply and demand shows that the industry is characterised by intense competition, much driven by unprofitable airlines continuing to fly (as investors will not realise their losses) and exogenous negative supply-and-demand shifts. Porter’s Five Forces shows that the airline industry is unattractive and does not offer a good profit potential. The internal analysis shows that SAS has two sustainable competitive advantages; SAS’ brand name and grandfather rights. The profitability analysis shows that SAS has underperformed since 2005. Yet, SAS has reduced its unit cost and switched to a more flexible cost base. Supplemented by a change in pension commitments, SAS shows indications of a positive trend for the future. SAS shows red flags on both short- and long-term liquidity risk. Our DCF valuation indicated a share price of SEK 19,60, while a relative valuation indicated a share price of SEK 12,41. The liquidation method indicated that there would be zero left for the owners after a liquidation. Conclusion: Our valuation conclusion is that SAS’ share price on 1 February 2015 was fairly priced. Even though our DCF valuation yielded a 20% higher share price, the fact that there would be nothing left for the shareholders in the case of a liquidation implies that the equity is even more risky than our DCF input was. Therefore, the observable share price of SEK 16,40 is fairly priced.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2015
Number of pages120