Valuation of Fabege AB

John Langenius & Simon Jarlén

Student thesis: Master thesis


The aim of this paper has been to undertake a fundamental analysis of the Swedish real estate company Fabege, in order to come up with an estimated fair value of its share, as of March 31st 2017. All-time low interest rates along with a strong growth in GDP and employment rate has boosted the Swedish real estate market, resulting in a tremendous increase in rent prices and occupancy rates. This has sparked debate of an overheated real estate market and a risk for a property bubble. In that light, a fundamental valuation of one of Sweden’s largest real estate companies has been undertaken. In order to perform a comprehensive and accurate valuation of a real estate company, a lot of emphasis was given to a strategic analysis of the real estate market and the most imperative factors influencing it. By analyzing the macro- and microenvironment of Fabege, it was concluded that a steep population growth, along with an increase in employment would continue to fuel the demand for commercial properties in coming years. Furthermore, as the supply of commercial properties will continue to be limited, many companies have decided to relocate its offices to adjacent suburbs, foremost Solna and Hammarby Sjöstad. Based on the findings from the strategic analysis and the results from the financial analysis, it was concluded that the key value drivers for Fabege are the market rent and the level of vacancy. In its turn, these two chapters laid the foundation for the forecasting of Fabege’s future profitability. As Fabege focus a lot on property development, and has approximately 350 000 sqm of approved development rights in Solna and Hammarby Sjöstad, they are well positioned to capitalize on the predicted growth in these areas. In addition, Fabege’s existing property portfolio, which consists of many attractive properties in Stockholm Inner city, is predicted to stay profitable as market rent and occupancy rate are believed to increase even further. After having forecasted Fabege’s expected free cash flows, the DCF- and EVA model was used to calculate the fair value of Fabege’s share, resulting in a share price of SEK 171,4, which can be compared to the market price on the same day (31st of March 2017) of SEK 142,5. A multiple valuation was used as a sanity check to see if the estimated share price seemed reasonable. In order to critically assess the result and the underlying uncertainties in some of the estimated inputs in the DCF-model, a Monte Carlo simulation and sensitivity analysis was applied. The results from the simulation revealed more about the underlying uncertainty in two of the most imperative variables for Fabege, the market rent and the level of vacancy, and how changes in these inputs, given their estimated uncertainties, would affect the predicted value of Fabege.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages137