Valuation of SAS

Rasmus Stoumann Jensen & Lars Pfeiffer Petersen

Student thesis: Master thesis


The aim of the thesis was to determine the fair value of the SAS stock as of June 11th 2010. SAS has received much attention in the media recently partly due to the poor financial performance in the past years. In an attempt to turn SAS profitable a cost saving program, Core SAS, was introduced in 2009, and its implementation was supported by a capital injection MSEK6.000. Given the financial crisis a further injection of MSEK5.000 was initiated in 2010 to secure the full implementation of Core SAS. The valuation was conducted through both a strategic and a financial analysis that together facilitated a forecasting of the future financial performance which enabled a calculation of the value of the SAS stock. In the strategic analysis it was concluded through a PESTLE analysis that the expected rise in Nordic GDP will affect the passenger traffic positively whereas the future increasing oil prices were found to impact especially the low-cost-carriers negatively. The competition in the airline industry was found fierce particularly because of the success of the low-cost-carriers Ryanair and Norwegian but the focus of SAS on business travellers reduces the competitive rivalry. As a consequence of this focus SAS was concluded to be stuck-in-the-middle in an unsuccessful attempt to deliver high quality at low cost. One of the key findings of the financial analysis was that SAS had a poor Return On Invested Capital indicating financial trouble. In line with the Core SAS strategy it was concluded that SAS had managed to reduce its overcapacity, represented by a drop in available-seatkilometres and furthermore, the airline increased its efficiency as revenue-passengerkilometres dropped less. Another central finding was the high operating costs of SAS, partly seen from the payroll expenses that were found substantially larger than for its competitors together with poor load factor. The valuation was conducted through a discounted-cash-flow model supported by multiple analyses and the calculation values were subsequently evaluated through a sensitivity analysis. The discounted-cash-flow valuation resulted in a stock value of SEK30,66, a 8,74% premium to the actual share price employing a weighted-average-cost-of-capital of 6,28%. The multiple analyses EV/EBITDA and EV/traffic revenue resulted in prices of SEK11,20 and SEK86,24 correspondingly, underlining the inaccuracy of using solely multiples for valuation. The price of SEK30,66 was concluded to be driven mainly by the rising GDP together with the Core SAS cost-cutting effects, lowering payroll expenses and other operational expenses. Lastly, the stability of the calculated share price was tested through a sensitivity analysis that found the share price little sensitive to changes in revenue growth but highly sensitive to changes in operating expenses whose development relies on the successfulness of the implementation of the Core SAS strategy. The calculated share price of SEK30,66 was therefore concluded an optimistic, yet fair value, as the capital injections are expected to secure the Core SAS strategy.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2010
Number of pages162