Valuation of SAS: Using the discounted cash flow model and a relative valuation approach

Carl Mellerby & Carl Måsson

Student thesis: Master thesis


During the past years SAS has been struggling financially mainly due to increased competition and a high cost structure. In 2012 the continuously poor financial performance resulted in a severe crisis and SAS was only days away from filing for bankruptcy. However, SAS managed to survive the crisis thanks to extended credit lines and renegotiations of loan-and union agreements and in the fiscal year of 2012/2013, SAS exhibited a full year profit for the first time since 2007. The financial distress in 2012 and the recurrence of profitability during the fiscal year of 2012/2013 make SAS a highly interesting valuation case. Therefore the purpose of this thesis is to determine the fair value of one SAS AB share by the 1st of April 2014. In order to determine the fair value, the thesis utilizes two different valuation approaches, namely a discounted cash flow model and a relative valuation approach. The two valuation approaches are founded upon a comprehensive and thorough strategic analysis using the PESTEL-framework and the Porter´s five forces-model as well as a financial analysis based on the DuPont-framework. The valuation using the discounted cash flow model estimates the fair value of SAS to be 17.03 SEK by the 1st of April 2014. Since the actual share price of SAS at that time was 14.65 SEK, the discounted cash flow model thereby suggests an undervaluation of the SAS share. The undervaluation is supported by the relative valuation approach. Factors identified in the analysis supporting the valuation include among others that SAS is able to charge higher ticket prices and thereby enjoy a higher yield compared to competitors. This is possible due to brand loyalties and scale advantages, stemming from past governmental ownership. Additionally, SAS has been able to significantly reduce its payroll expenses by decreasing wages and pensions and cutting numbers of employees. SAS is also better than peers at utilizing its assets and in the midst of a fleet renewal, which will lead to a future savings in jet fuel costs. The main conclusion to be drawn is thereby that the general market seems to be more pessimistic to the future prospects of SAS than what is actually indicated by the discounted cash flow model and the relative valuation approach. Following SAS’s poor performance during the last years this is however not very surprising and it will most likely take several years before the stock market regains full confidence in SAS and is able to fully appreciate its fair value.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2014
Number of pages152