Strategic analysis and valuation of GN Store Nord A/S

Tobias Bailey

Student thesis: Master thesis


The purpose of this thesis is to estimate the theoretical value of GN Store Nord A/S as of the 1st of May 2011 and compare it to the spot price at the time of DKK 50. With the first decent result for years occurring in 2010, a thorough strategic analysis has been done, focusing on both the internal as well as the external factors affecting the future of the company. The analysis of the internal strengths and weaknesses revealed that with a solid market position, strong brands, and a healthy financial position, GN Store Nord can keep pace with the fast moving markets in which it operates. There is however room for improvements, where certain segments, such as those under GN Netcom, tend to rely on larger customers in cyclical markets. Meanwhile, GN ReSound faces the issue of distributing fixed costs such as R&D over a smaller volume compared to bigger players in the marketplace. External opportunities are present in the form of growth in emerging economies, higher market penetration and an aging population. In order to truly benefit from these and achieve above average returns in the long term, GN Store Nord will need to continue to develop the new “must have” products, while focusing on keeping costs and investments in check. Due to the highly competitive market, fragile global economy and healthcare reforms, it seems unlikely that GN Store Nord will outperform the market in the long term. That being said, the present strategy for GN Store Nord provides a “strategic fit” compared to the circumstances pertaining to the company. By analyzing the historical financial statements for GN Store Nord, it was possible to align the trends with the strategic analysis performed. After a period with poor or negative value creation from 2006-2009, a number of underlying key ratios such as the Operating Margin and Asset Turnover caused the ROIC to improve in 2010. This was present even when accounting for the onetime TPSA award included in the 2010 financial statement. The findings from both the strategic and financial statement analyses were then combined into proforma budgets to come up with the underlying assumptions used in an EVA valuation model. The result from this showed that, once discounted back at the WACC, the theoretical value of a share was DKK 48. Due to the subjective nature of several underlying assumptions, a sensitivity analysis was performed. Using a Monte Carlo Simulation, it was illustrated that changes to the risk free rate and the operating margin accounted for the largest share of uncertainty in the estimate. Finally it showed that there was slightly higher upside than downside to the base-case estimate and that there was a 95% certainty that the price of a share would be between DKK 32 and DKK 94.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2011
Number of pages101