Fundamental analysis and valuation of Prosafe Production

Anders W. Eide

Student thesis: Master thesis


The main objective of this master thesis was to determine the fair value of Prosafe Production’s equity. The company was listed on Oslo Stock Exchange on June 2nd 2008 following the split from Prosafe SE in May the same year. The company is a leading owner and operator of Floating Production, Storage and Offloading vessels. Currently, the company owns and operates seven vessels, five FPSOs and two FSOs. In addition, three tankers are being converted to FPSOs, which are expected to start operating in early 2009. The floating production industry has experienced strong growth in recent years, and this trend is expected to continue as a response to oil fields moving into deeper waters and more distant locations. The oil industry is highly cyclical, and the current strong up-cycle has obviously affected the FPSO industry in a positive way. Prosafe Production is well positioned in the industry to take advantage of this fact, and the company currently has several long-term contracts that will secure a strong cash flow for the coming years. In order to value the company, a fundamental analysis approach has been used. The PESTE model, Porter’s five forces and a SWOT analysis has been applied in order to determine Prosafe Production’s strategic position. This strategic analysis, together with a financial statement analysis, has been the basis for forecasting future financial statements. The fair value of Prosafe Production has been conducted using the enterprise DCF model. I have estimated the fair value of the company’s equity to be USD 1681,0 million, corresponding to a share price of NOK 35,4 on August 22nd 2008. At the same date, the observed share price at Oslo Stock Exchange was NOK 24,4. Thus, according to my estimations, the company was undervalued by NOK 10 per share. At the end of this thesis, I have performed a sensitivity analysis in order to determine the sensitivity of estimated share price towards two important parameters, WACC and growth rate. This analysis uncovered that small changes in estimated WACC and growth rate would lead to relatively large changes in the share price, and the valuation performed is more sensitive to changes in WACC than changes in growth.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2008
Number of pages81