Strategisk analyse og værdiansættelse af Novo Nordisk A/S

Christian Landgren

Student thesis: Diploma thesis


The purpose of this paper is to assess the value of the public limited company Novo Nordisk A/S. Novo Nordisk is a pharmaceutical company with a main business area within development and production of medicine for treatment of diabetes. The company also works with the treatment of haemophilia and the development of growth promoting hormones and other hormone specimens. Novo Nordisk has its main office in Denmark and has about 30.000 employees in 74 countries. The company’s products are sold in 180 countries worldwide. The value assessment is based on the financial and non-financial value drivers. The non-financial value drivers are identified in the strategic analysis while the financial value drivers are identified in the financial analysis. Based on the conclusion from the strategic analysis and the financial analysis, it is possible to budget the future development. In the strategic analysis, the internal and external conditions that affect the company are analysed. The analysis is done on three levels: the society level, the business level and the company level. The conclusion in the strategic analysis shows that the development of medicine is very time consuming and expensive. This is also why patents are applied for early in the process of developing the products, and there are constant attempts to develop new or improved versions of the products so the patent can be prolonged. Worldwide, the expenses on healthcare have increased (part of the GDP used for healthcare). At the same time, the average life expectancy has increased and the number of patients with diabetes is also expected to rise strongly in the future. These are all positive tendencies for Novo Nordisk. The revenues of Novo Nordisk are affected by the foreign currency movements because the majority of the turnover is in other currencies than Danish. Novo Nordisk is the market leader with a market share of 51% and the three biggest players on the market combined have almost 96% measured on volume. The intensity of the competition is said to be strong, based on the continuing growth possibilities and because of the constant development of new products. Looking at the product portfolio of Novo Nordisk, you see that most of it is within the growth period; therefore the portfolio is seen as strong. Also, if you look at the pipeline there is a selection of new products ready to substitute the old ones, and here Novo Nordisk also has a line of new products ready that will secure a good sale in the future. Overall, Novo Nordisk has a strategically strong presence. The financial analysis is based on the accounts from the last five years. To be able to use the accounts for analytic purposes it demands a rephrasing of the equity, the profit and loss account and the balance. Next, a cost/benefit analysis is made based on the expanded DuPont model, from where the economic key figures are deduced. The analysis shows that Novo Nordisk paid interest on their equity of about 46% in 2010 and that this has increased every year with the exception of 2008. The development of ROE (return on equity), is due to a rising ROIC (return on invested capital), which amounted to about 71% in 2010. ROIC is composed of the profit margin and the asset turnover. The profit margin was a total of 28% in 2010, of which about 24% can be ascribed to the primary operation. The profit margin is the key figure that contributes the most to the total ROIC. This is very clear in 2008 where the profit margin dropped, and despite the rising AOH the ROIC had an overall drop. The profit margin has increased by 10 percentage points in this period which indicates that Novo Nordisk has improved in turning their activity into profit. The asset turnover has increased constantly in this time period from 1.4949 in 2006 to 2.56 in 2010. To throw the key figures into relief, a benchmark analysis is made including the market competitors of Novo Nordisk. The analysis shows that the key figures in the business moves in step with one another though Novo Nordisk is slightly in the lead in all figures. The characteristics for the pharmaceutical industry are high profit margins and a low financial gearing (net financial assets). Following the strategic and financial analysis, a budget is drawn up, based on the conclusions from the analysis. The budget is naturally estimated on the basis of realistic conditions. In the paper, the budget period is estimated to be nine years, because all of the main products in Novo Nordisk has patent expiry between 2014 and 2019 on all of the big markets. For the valuation, the DCF model is used. The discounted cash flow model (DCF) is the most used model in practice. The model is considered to be independent of applied accounting policies and measures the value on a company level, meaning both from the view of the creditor and the owner. Supplementing the DCF model is the RIDO model. Both models must end up showing the same value. To determine the discounted cash flow, the discount factor must be calculated. This factor is determined by WACC. WACC is the required rate of return for investors and creditors. Lastly, the final value of Novo Nordisk is determined by itself. From the DCF model comes an Enterprise Value of DKK 493 billion and an Equity Value of just about DKK 480 billion. This gives a fair estimated share price of DKK 799. As the valuation model is based on many different conditions and thereby has many elements of uncertainty, this can be the reason for the difference in exchange - in this case, determining the WACC. Likewise, it is shown what significance the terminal value has for the valuation. In the above case, the Terminal Value is just about 75% of the overall company value in the DCF model and 66.5% in the RIDO model. Therefore, many different value estimations can occur when regulating the conditions for the terminal value. The effect of small changes the conditions is made in the following sensitivity analysis. If comparing the found price with the closing price on the Novo Nordisk share on April 20 2011, which was 699, it indicates that the share is underestimated. The Novo Nordisk share must therefore be seen as an attractive investment object for investors.

EducationsGraduate Diploma in Financial Planning, (Diploma Programme) Final Thesis
Publication date2011
Number of pages117