Valuation of Norwegian Air Shuttle ASA

Fredrik Arne Bryne & Ole Marius Hobbelstad

Student thesis: Master thesis


The purpose of this thesis is to estimate the share price of Norwegian Air shuttle ASA per 18.04.2013. In order to obtain this estimate we analyze the strategic environment in which Norwegian Air Shuttle ASA operates, and use this as a basis for financial analysis, forecasting and finally a valuation. In our strategic analysis we uncovered fierce competition in the European market. The industry is characterized by low entry barriers and intense price competition. Companies such as Ryanair and easyJet were found to be the toughest competitors. This was confirmed in the financial analysis, were we found that these companies were the most cost efficient and performing well above the level of Norwegian Air Shuttle ASA. The company faces both challenges and opportunities in relation to the future development in competition. We believe the price competition will contribute to push ticket prices down and subsequently the revenue growth of Norwegian Air Shuttle ASA. However, the dire situation of the Scandinavian market leader SAS gives opportunities for market share takeovers. In addition, the expansion into new markets through long-haul operations is probably well timed, as we uncover great passenger potential in emerging markets. In our forecast we predict that unit costs, as well as unit revenues, will fall the next 10 years. A large, new and modern aircraft fleet will push unit costs down and enable Norwegian Air Shuttle ASA to compete on the same premises as its main competitors. We also believe that the company will continue to be able to fill its planes, as air travel demand will be prominent in new markets. In the valuation section, we apply the acknowledged Discounted Free Cash Flow and Discounted Economic Profit models in order to obtain a value of Norwegian Air Shuttle ASA. From these models we have obtained a value per share of 291 NOK which indicates an undervalued share and an upside potential of 24.39 percent. A sensitivity analysis shows that the share price is particularly sensitive to fuel price and the level of unit revenue. Monitoring the development of these factors is believed to be especially important for potential investors. Due to the concluded share price, as stated above, we propose a buy recommendation on Norwegian Air Shuttle ASA per 18.04.2013.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2013
Number of pages189