A Valuation of Norwegian Air Shuttle ASA

Henrik Kirkeeide Hjelmeland

Student thesis: Master thesis


This thesis estimates the market value of equity in Norwegian Air Shuttle ASA as of December 31st, 2019. All the information applied are based on publicly available information. Norwegian is traded at Oslo Stock Exchange under the ticker NAS and throughout the last couple of years, they have grown to become one of the biggest airline companies in Europe. However, they have struggled to earn a profit lately. Thus, the purpose of this thesis is to estimate the fundamental value of the firm by estimating future cash flows, discounted back to present value, using the weighted average cost of capital. Hence, through the free cash flow to the firm approach (FCFF).
The valuation starts with a strategic- and financial analysis of the industry and the chosen case company. The information found in these analysis provide a solid foundation to estimate future cash flows for the company. Future revenues were estimated using key operating figures within the industry. Operating expenses were calculated using a sales-driven approach. This except the expense of aviation fuel, which is highly volatile and needed a better estimate. Thus, a linear regression on crude oil and jet fuel was performed in order to derive a sensible aviation fuel cost. Furthermore, to find the final value of one Norwegian share the weighted average cost of capital was estimated at 7.54 percent. In order to test the result of the valuation a sensitivity analysis was conducted to see how small changes in key value drivers would affect the valuation estimate. The analysis unveiled that the value estimate was sensitive to changes in the cost of capital, the growth rate, and the oil price. Following the sensitivity analysis, a relative valuation was performed to further stress test the value estimate. This valuation based on multiples, revealed that Norwegian was undervalued compared to peers. However, the chosen peers have different risk characteristics than Norwegian. Thus, not viewed as truly comparable, and the results therefore support the value estimate from the discounted cash flow model.
The thesis has several limitations, one of them is the assumption that Norwegian can refinance their debt going forward. Norwegian is found to be a very risky investment, and external factors might have significant effect on the company. Discounting the estimated cash flows yielded a value estimate of NOK 37.45 per share. This is very close to the share price Norwegian traded on at the last day of trading in 2019. The share price of Norwegian closed on NOK 37.75 on December 30th, 2019. ThXs, a ┬│Zatch┬┤ recommendation is given.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2020
Number of pages112