Oil is Back: A Strategic Analysis and Valuation of AKER BP ASA

Brage Andreas Karlsen Ofstad & Carl-Magnus Flethøj Tvedten

Student thesis: Master thesis

Abstract

This thesis contains a strategic analysis and valuation of Aker BP ASA (“Aker BP”) as of 19 March 2019. Aker BP is listed on Oslo Stock Exchange under the ticker AKERBP and traded at a price of NOK 304 on 19 March 2019. The goal of this thesis is to estimate Aker BP’s enterprise value and the value of Aker BP’s equity as a going concern. Both fundamental- and relative valuation methods are utilized and all estimates in this thesis are based on publicly available information. Our problem statement is: “What is the appropriate share price of Aker BP ASA as of 19 March 2019?” This valuation of Aker BP starts with a thorough strategic analysis of Aker BP’s external environment. The analysis shows that the Norwegian oil & gas industry is exposed to several risks with the capacity to significantly impact future growth and value creation. Following the macro-environmental analysis, a thorough analysis of global oil and gas markets is performed with the goal of predicting future market prices. Our oil- and gas price predictions are definitely in the upper range of analyst estimates, but this is regarded as appropriate given our bullish view on global growth. The strategic analysis ends with a competitive analysis of the Norwegian oil & gas industry and an analysis of some resources/capabilities that are deemed as absolutely crucial for Aker BP’s success. Our analysis shows that there are several factors that make the Norwegian oil & gas industry attractive for established companies and that Aker BP possess resources with the potential to provide a competitive advantage. The second step in our valuation of Aker BP is to conduct a detailed analysis of historic financial statements in order to forecast Aker BP’s future performance. Aker BP has undertaken several mergers and acquisitions in recent years, thereby limiting the relevance of historic financial statements. Our future performance estimates therefore rely heavily on our industry outlook and guidance provided by Aker BP. Following our forecast of future performance, Aker BP’s cost of equity and weighted average cost of capital is estimated to equal 9.2% and 8.2%, respectively. Based on our forecasted cash flows and weighted average cost of capital estimate, the fundamental enterprise value of Aker BP is equal to USD 19,497 million. With net financial liabilities of USD 2,018 million, Aker BP’s total market value of equity is equal to USD 17,479 million or NOK 425 per share. Our relative valuation based on comparable companies provided us with an estimated enterprise value of USD 16,412 million and a value per share of NOK 350. Following the initial value estimates, a sensitivity analysis was performed. The sensitivity analysis showed that Aker BP’s value per share is highly sensitive to the assumptions taken. Given a price per share of NOK 304 as per 19 March 2019 and our final value estimate of NOK 425 per share, we have a buy recommendation for Aker BP ASA.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages139
SupervisorsSøren Bundgaard Brøgger