Conglomerate Discount: A Case Study of Atlas Copco AB

Christian Alexander Hoeck Endresen & Gustav Alexander Rønholt

Student thesis: Master thesis


Stocks of companies engaged in multiple unrelated business segments are often found to trade at a price below the accumulated fair value of each individual segment This phenomenon is commonly referred to as conglomerate discount. Since its inception in 1873 the Swedish company Atlas Copco AB (the company), has emerged from a specialized railroad equipment company to a global conglomerate with a 2017 revenue of c. SEK 116bn. In 2017 the company announced intentions to spin-off its Mining and Rock Excavation Technique segment into a separate publicly listed company (Epiroc AB). The authors find the shift of strategic direction fascinating and moreover as a potential indication of a conglomerate discount. Resulting hereof, the overall objective of the thesis has been asses if a conglomerate discount applies to Atlas Copco. To facilitate this analysis the first step was to review existing literature and statistical studies covering the discount phenomenon. The review yielded a high degree of contradicting findings. To further clarify, the thesis implemented its own statistical study to determine if a discount could be observed in today’s equity markets. A mild indication of a global discount was found. However, the authors acknowledged the lack of statistical robustness and further found that a universal non-company-specific approach to analyzing conglomerate discount is somewhat erroneous and that the only way to truly shed light on the matter, is by a company specific approach. The thesis moved on to the case of Atlas Copco and by a comprehensive strategic and financial analysis laid groundwork for financial forecasts and implementation of a DCF, EVA and sum-of-the-parts (SoTP) analysis. A share price on the 8th of May 2018 was by the DCF model estimated at SEK 342,1, which indicated that the actual share trades 2,7% above the theoretical value and hence that a conglomerate discount for Atlas Copco could not be observed. The conclusion was supported by a sensitivity analysis. Combining the valuation findings with an analysis of Atlas Copco’s conglomerate structure, a superior structure solidified the conclusion. A significant conglomerate discount can neither be observed or justified for Atlas Copco.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2018
Number of pages192