Strategic Analysis and Valuation of DONG Energy

Niels Broholm

Student thesis: Master thesis


This thesis investigates whether the shares of DONG Energy A/S were sold at a fair price during the capital increase at the beginning of 2014. The equity of the company was valued at DKK 31.5bn at the time of sale.By conducting a disaggregated discounted cash flow valuation, the fair value of DONG Energy’s equity is estimated to be DKK 51.4bn at the time of the sale. Since this valuation of the equity is DKK 19.9bn, corresponding to 63%, higher than the valuation in the deal, the thesis concludes that the Danish government did not sell the shares at a fair price in the capital increase of 2014.The valuation in this thesis is based on strategic and financial analyses of DONG Energy’s four business units: Exploration & Production, Wind Power, Thermal Power, and Customers & Markets.Exploration & Production, which produces oil and natural gas, is in a risky business because its profitability is highly dependent on the prices of oil and natural gas.Wind Power is the global market leader within construction and operation of offshore wind farms. This market is expected to continue its growth as the global energy mix is shifting towards more renewable energy. Wind Power first mover advantage in the form of technological leadership serves as a sustainable competitive advantage, and this makes it the most valuable of the business units.Thermal Power, which generates electricity and district heating in Denmark, is the least valuable of the four business units, because the business model is suffering due to low contribution margins, that are expected to stay low in the foreseeable future.Customers & Markets sells and distributes electricity and natural gas in Northern Europe. It also hedges DONG Energy’s energy exposures. While the hedging activities are not assessed to particularly valuable, the customer bases within natural gas and electricity sales are valuable, and they serve as a sustainable competitive advantage.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages80