Strategic Accounting Analysis and Valuation of Novo Nordisk A/S

Cecilie S. Christensen & Xhevdet Veseli

Student thesis: Master thesis


Novo Nordisk A/S (Novo) is a major player in the global healthcare market with activities in the business segments for treatment of diabetes, obesity, hemophilia and growth disorder. The group is a market leader in the insulin segment with a market share of approximately 41 pct. In the recent fiscal year, Novo experienced a drop in their share price of approximately 36 pct. 2016 was also a year where Novo received unwanted attention in the American presidential election and allegations of artificially boosting their medicine prices were made by the consumers.
The aim of this thesis is to estimate the value of the Novo Nordisk A/S B-share as of December 31st , 2016 and to conclude whether the share is under- or overvalued in the market.
First, in order to lay the foundation for the financial forecast, a strategic and financial analysis is undertaken, to identify key factors affecting group earnings as well as the drivers of the historical operating profitability. Second, the value of the Novo share is estimated applying the discounted cash flow model and the economic value added model. Third, the reasonableness of the value estimate is tested through alternative budget scenarios. Finally, the sensitivity of the share price to changes in the discount rate, terminal growth rate, EBITDA-margin and NOPAT is evaluated.
The volume growth in the diabetes and obesity treatment market had huge potential due to a steady growth of people diagnosed with type 1 and 2 diabetes and an obesity pandemic of global proportions. Furthermore, the market is protected by high barriers of entry and characterized by a low threat from substitute products and suppliers. However, Novo is also facing uncertainties, particularly a high-level pressure on prices from their buyers and allegations by politicians and consumers of artificially boosting their medicine prices. Additionally, competition is increasing and Novo's buyers/consumers are gaining bargaining power. The financial analysis showed an increase in historical operating profitability, caused by better cost optimization and better inventory management. However, in the near future the operating profitability will decrease due to new regulation regarding leasing activities.
The DCF and EVA valuation yield an estimated share value of DKK 353.3 as of December 31st, 2016, which, compared to the share price of DKK 254.7, suggests that the share is undervalued by the market. Even though the alternative budget scenarios supported this conclusion, the sensitivity analysis shows that the value estimate is highly sensitive to changes in the applied discount rate with an increase of just 1 percentage point changing the conclusion.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2017
Number of pages148