Evaluation and Estimation of the Expected Offering Price on the Listing of Dong Energy, Including a Valuation of the Theoretical Value

Trine Rie Jensen

Student thesis: Master thesis


The purpose of this thesis is to evaluate and estimate the expected offering price on the listing of DONG Energy, including a valuation of the theoretical value. The valuation was based on a strategic, financial and risk analysis of the company, while the expected offering price was the result of a correction on the theoretical value.
The company’s strategic position was considered to be positively influenced by their strong position as market leader in offshore wind farms. Generally, their strategic focus to convert production from coal, oil and gas to sustainable biomass and offshore power is a powerful stand, especially in a market where political influence and support towards CO2-reducing technologies is still increasing. On the other hand, it is considered to be a weakness to be so dependent on political influence. Due to difficulties in the oil rig, Hejre, DONG Energy has also faced a weakened position in their oil exploration.
DONG Energy’s financial position was positively affected by their ability to generate profit on EBITDA-level in all four business areas. Meanwhile, after taking depreciations and amortisations into account only Wind Power was able of proving to be profitable on EBIT-level. Due to the lack of surplus DONG Energy faced a lot of negative key figures such as return on equity and profit margin.
Considering the risk factors in DONG Energy there is a lot of different risks connected to the company due to the large variety in business areas. The company is exposed to the risk in unstable oil and gas prices, which is considered a financial risk for the company. Due to the ownership structure in their offshore projects the company is able to minimize the operational risk exposure, but the business area is also exposed to an uncertainly in not knowing how long the public subsidiaries will continue.
On the basis of these findings the earnings for the next five years was budgeted, leading to a valuation of the theoretical value of DONG Energy. The theoretical value was found to be 182 DKK per share. This value was corrected on the basis of two main variables, identified in the analysis to be most influential on the offering price: the level of underpricing and the level of demand. Further analysis of these variables lead to the conclusion that there should be given a discount to the theoretical price when initially listing DONG Energy. The expected offering price was therefore valued to be 168 DKK per share when the company is making their initial public offering.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages96