Valuation of Lego: DCF, Fourier analysis and Monte Carlo Simulation

Per Elsted Hansen

Student thesis: Master thesis


This thesis aims at estimating a fair value of Lego. The discounted cash flow model serves as the overall guideline in relation to the computational valuation. Thirty financial statements from 2006 to 2015 are reformulated and analyzed – ten statements from Lego and a sum of twenty from Lego’s largest competitors Hasbro and Mattel. The case of Lego is interesting because in just ten years, the firm went from near-bankruptcy to becoming the second largest toy-manufacturing firm in the world measured by revenue. In addition, Lego is an unlisted firm and having no access to the inner workings in the research of Lego proves to be a challenge during the process. The research relies heavily on historical public record data and information asymmetry is therefor expected, which may yield a ‘less true’ valuation than otherwise possible. Lego’s famous product, the Lego Brick, is today the single most sold toy product across the global toy and games industry. A strategic analysis is conducted on macro and micro levels, while meso level analysis in general is avoided due to the sheer scale and scope of Lego. In the practical part of forecasting time series data (10-year government bond interest rates, revenue and NOPLAT), the data was first checked to rule out randomness by using Fisher’s Kappa test statistic, as well as Bartlett’s Kolmogorov-Smirnov test statistic. Depending on results, Fourier analysis is employed to reveal any periodicity, and later benchmarked against various regression models. However, for the data at hand, and although only in a minor degree, Fourier transformation proves to be inferior compared to the regression model. In accordance with the research design chosen, regression modeling takes the precedence over Fourier analysis. After benchmarking, forecasting and calculating the final valuation, it is put into perspective against peer firms. In addition, to try simulating “what if scenarios” of possible enterprise values, the thesis incorporates Monte Carlo modeling on one and two dimensions. The resulting valuation is found to be DKK ~460bn using 10 year budget from 2016-2025. The strategical analysis indicates an exciting future for Lego, which gives credit to the valuation, and as such, it is assumed that the valuation is fair given the limitations of thesis.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages154