Valuation of Novo Nordisk B A/S as of March 31st 2017

Firat Emin Kücükavci

Student thesis: Master thesis


This paper is a detailed analysis of Novo Nordisk A/S in order to determine a fair value of the share price and evaluate whether it was over or undervalued on 31st of March 2017 following a period with significant price decrease. In order to value Novo Nordisk A/S a strategic and financial analysis was conducted. The findings in these analyses followed to a forecast of Novo Nordisk’s free cash flow within a forecast horizon of eight years. Finally, previous sections findings were used as input to the valuation model followed by a sensitivity analysis of the share price in relation to the four most important drivers of the model, namely the long term growth rate, the weighted average cost of capital, the EBITDA margin and the revenue growth in the budget period. The strategic analysis indicated that increased global political pressure and changed legislation for abbreviated licensure pathways for biosimilars has caused increased threat from new entrants and increased rivalry between existing players. In addition, consolidations between the private benefit managers, who negotiate prices for private insurance companies, have lead to notably bargaining power to the American buyers. Furthermore, the strategic analysis suggests a high potential of the pipeline and product portfolio of Novo Nordisk with several market leading products, such as Victoza®, Norditropin® and NovoRapid®, and future blockbusters, including Tresiba®, Xultophy®, Fiasp® and Semaglutide®. The financial analysis of the statements over the last five years indicated that Novo Nordisk is highly competitive and superior to Eli Lilly and Sanofi in generating return on invested capital, particularly due to its competitive advantage in cost management. The valuation of Novo Nordisk is based on two approaches. The main model is the discounted cash flow (DCF) model. This model is supported by a multiple valuation approach, where EV/EBIT and EV/EBITDA ratios are considered to provide better estimates than any other multiple. The DCF model valued the share price to DKK 299.5. The multiple valuations provided a valuation range from DKK 277.2 and DKK 376.2. The calculated DCF price is within the range of the share price calculated with the multiples, indicating the DCF valuation to be reasonable. On basis of the analysis, the fair share price of Novo Nordisk B A/S as of March 31st 2017 is DKK 299.5, which implies a premium of 25% to the actual close price at the same date. This indicates, that the market has mispriced and undervalued the stock.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2017
Number of pages118