Valuation of Icelandair Group: Using the Discounted Cash Flow Model and a Relative Valuation Approach

Einar Ingi Kristinsson

Student thesis: Master thesis


During the past years Iceland has been in most conversations when it comes to holidays. During the crisis Iceland became more popular as it provided more value for tourists as the Icelandic Krona collapsed. In more recent times Iceland has been posted around social media and passenger growth has been steady for the last years. This brings us to Icelandair Group, a firm severely affected by the crisis but bounced back from it. Capital controls in Iceland pushed the pension funds to invest domestically and that raised questions, is Icelandair overvalued in the market?
This thesis is based on the Discounted Cash-flow model to forecast the value. The discounted cash flow was largely based on extensive work within the strategic and financial analysis chapters, where the micro and macro environment were analysed through PESTEL analysis and Porters Five Forces for the strategic analysis and the DuPont framework to help finding key figures for forecasting leading to the ROE.
According to the Discounted Cash-Flow model we found that the fair price for one share of Icelandair Group stock is valued at 47,07 ISK compared to the market rate of 9,46. According to that the market should be under valuating the share price. The relative valuation method of using EV/EBIDTA gives us the equity value per share of 23,64, a result that correlates with the Discounted Cash-flow method, that the investors are under valuating the stock.
It is important to note that these forecasts are not scientific and are largely based on the authors beliefs of future profits.
The main conclusion is therefore the market is more pessimistic compared to the author and the author feels like there are great opportunities for growth in the future.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2020
Number of pages83