Værdiansættelse af SAS AB: En strategisk og regnskabsmæssig analyse

Andreas William Hansen

Student thesis: Master thesis


The purpose of this thesis is to determine the fair market value of one Scandinavian Airlines/SAS AB stock, including an analysis of the key factors and value‐drivers that significantly influences the stock’s price. The analysis was done on the basis of both a strategic and a financial model‐approach. The global economic crisis has made the airline business an extremely challenging industry. As for many other airline companies the future of SAS seems uncertain, as a lot of elements are expected to influence the direction of the company: 1. As a direct consequence of the economic slowdown the demand for air transport has declined strongly – both from private and business people. This is not expected to change in the short to medium run. 2. SAS is still a company with very high costs, making it look inefficient relative to its competitors. 3. Competition is expected to intensify as more low‐cost airlines enters the industry 4. In the short run SAS needs to invest heavily in its fleet, something which will have a significant negative cash flow effect 5. IAS19 is being revised by IASB. One expected result from this revision is that accumulated actuarial gains or losses on the SAS company pension scheme must be recognized in their entirety in shareholders’ equity. Currently the funding ratio of the pension scheme is significantly below one. The result will come into effect on January 1st 2013 at the earliest. Part of these problems have temporary been solved by an injection of capital in 2009, and a new injection of capital in the spring of 2010. One of the prerequisites for SAS’ survival and future operation is successful implementation of Core SAS. This strategy implies overall savings and focus on the business segment in its core market in Scandinavia. Past savings and the attempt to close the cost‐gap to its competitors is also recognized. The improvement and strengthening of competitiveness will implicitly raise the earnings power, but until SAS is able to catch up with the efficiency level of its competitors the pressure will remain. At the moment it almost appears unlikely that SAS can ever lower its costs to the level of its competitors. The decline in demand due to the economic slowdown has changed the preferences for many customers to the cheap seats at the low‐cost airlines. In addition to this, two other factors have proven to affect SAS negatively. The analysis revealed the fact that state ownership possibly has a negative impact on earnings. Short‐haul routes also seem to have a lower return than long‐haul routes, which is in contradiction with SAS reducing its long‐haul network. Among the factors that may pull the stock price higher are good traffic figures and a realization of the savings. An increase in the yield stronger than expected should also support the share price, as will a decline in oil prices or the US dollar by improving earnings. Finally, a turnaround in the economic conditions naturally increases the demand from business travelers. The stock price was on April 1, 2010 traded at SEK 2.70, reflecting a normalized EBIT margin of 4.83% in the DCF model, which has been the primary valuation model used in this thesis. Historically, SAS has had an EBIT margin of 2.5‐3%, and therefore it can be questioned that an EBIT margin of 4.83% is feasible. In the annual report SAS expects a long‐term EBIT margin of 7%. This seems too optimistic. The average EBIT margins of the competitors of SAS have averaged 3.63% in the last 10 years. This appears more realistic and has been implemented as the foundation of the base scenario of the analysis. Together with the other assumptions of the DCF model this leads to a stock price of only SEK 0.37. The conclusion is that currently the financial markets implicitly value the SAS AB stock on the basis of too optimistic a scenario for the future profitability of the company. The problems with large fixed costs, high wages, accumulated actuarial losses, implementation of a new strategy, intense competition, extensive safety requirements, risk of accidents, high oil prices and a customer segment who‘s preferences mainly regard the price, are according to this analysis, underestimated by the market.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2010
Number of pages101