Valuation of BWG Homes

Peter S. Duus

Student thesis: Master thesis


The purpose of this thesis is to find the fundamental value of the Norwegian and Swedish house-building company BWG Homes. A strategic and a financial analysis were conducted to find the fair value of the company. All the findings from the strategic analysis indicate that there will be an increase in demand for homes in both Norway and Sweden for many years. As the population of each country is continuing to grow by 50,000–80,000 each year, there will be high demand for houses in the future. The current situation is characterised by an undersupply of houses in both countries, which will add to future demand for houses. The decline in the farming and production sectors has led to a clear trend of migration towards bigger cities, where jobs can be found, mainly in the service sector. The need for new homes, especially around central areas, is therefore obvious. This is where BWG Homes has its main operations and its knowledge base. The demand for houses has been identified, but there is still the question of whether there will be a demand for houses built by BWG Homes specifically. The findings show that BWG Homes builds attractive, energy efficient and up-to-date houses, and there is a broad variety of models to choose from. In addition, the company encompasses the two most recognisable brand names in both Norway and Sweden. It has been shown that BWG Homes is capable of exploiting its resources through profitable activities in a market that will need several thousand new houses every year. The financial analysis shows that BWG Homes has a large amount of easily sellable real assets. Most importantly, it has a ‘land bank’ with the potential for building 15,000 new homes as well as over 100 completed houses. The company has a good rate of turnover and satisfying operating margins, compared with its peers. It also has a healthy equity/debt ratio and a good cash reserve. The valuation was conducted using a DCF-model based on three different scenarios. The analysis is supported by a multiple valuation. The opportunity cost of capital (WACC) was found to be 7.2%, which is used to discount the future cash flow. The value of the share was found to be NOK 16.15. The closing price at the cut-off date was NOK 9.91, giving a potential upside of 63%. The value is highly sensitive to changes in the WACC, growth in the terminal period and the order intake. The value is therefore tested for changes in these parameters through a sensitivity analysis. The upside potential of BWG Homes is based on fundamental parameters which indicate that the housing markets in both Norway and Sweden are strong. The combination of a strong industry with the resources and capabilities of BWG Homes is believed make this company a sound investment.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2011
Number of pages131