Valuation of Peab AB

Fredrik Ahlberg & Victor Widerberg

Student thesis: Master thesis


The aim of this report has been to determine a fair value per share for the Swedish construction and building company Peab AB, as of May 2nd 2011, taking an individual investors’ perspective. The recent financial crisis, deeply rooted within the real estate market, brings forth debate on actual implications for the construction industry. Further supporting this is Peab’s recent re-purchase of its subsidiary Peab Industry. These factors are two of the ground pillars leading to this report’s goal, as they have severe implications on the value of Peab. In order to make a complete and accurate valuation, a strategic analysis has been made, focusing on macro-, micro- and internal factors. The analysis displays a rather bright future for Peab primarily due to expected strong economic growth and a continued housing shortage. Further strengthening the arguments is a financial analysis covering important underlying value drivers’ historical development. The analysis showed that the Company has achieved relatively stable growth but with decreasing profitability, which to a high extent could explained by dilution of the asset turnover without a corresponding increase of the profit margin. The findings from these two chapters are used to make budgets and forecasts necessary for the valuation. Once these have been executed, the actual valuation has been made through the two well-known models Discounted Cash Flow model and Economic Value Added model. The models resulted in a value per share of SEK 64.84, which is compared to the actual market price on the second of May 2011 of SEK 56.00. The initial analysis to be made on this result is that the market price is undervalued, offering investors an interesting investment opportunity. However, as the derived share value does not differ substantially from the actual market price, the report concludes with a hold recommendation. In order to critically assess this result, both a sensitivity analysis and a multiples comparison have been conducted. Interesting to note is that Peab’s share value is very sensitive to fluctuations in the profit margin as well as the WACC (and its underlying components). From the peer multiples comparison it could be drawn that Peab is fairly aligned to its closest rivals.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2011
Number of pages169