Valuation of Norwegian Air Shuttle ASA

Trond Sundquist

Student thesis: Master thesis


The subject matter of this thesis is to provide a comprehensive strategic and financial assessment of Norwegian Air Shuttle ASA, with the purpose of estimating the airline’s fair share price per 01.05.2018. The thesis applies diverse methods of analysis, such as recognized strategic frameworks and financial ratios to gauge the airline’s performance. The strategic analysis is organized to reveal how the macro-environment influences Norwegian Air Shuttle ASA’s strategic outlook through the use of the PESTLE framework. The micro-environment consists of industry-specific forces in the airline’s close vicinity and is examined through the Porter’s Five Forces model. Barney’s VRIO-framework investigates internal resources and capabilities and evaluates whether core competencies enable competitive advantage and whether they are exploited. The financial analysis investigates a wide array of ratios that indicate Norwegian Air Shuttle ASA’s financial health and competitiveness, relative to a selected peer group. The core valuation model of the thesis is the discounted cash flow model. The approach is stress-tested by a relative valuation and supplemented by a liquidation- and acquisition valuation. Scenario- and sensitivity analyses gauge the share price volatility. The findings of the thesis suggest that Norwegian Air Shuttle ASA operates in a highly competitive and capital-intensive industry. The strategic analysis shows that the industry is characterized by homogeneous products and services, while a low oil price has expedited major investments in capacity and increased the financial risk in the industry. Norwegian Air Shuttle ASA is also delivering inferior financial performance, relative to its peer group consisting of SAS, Ryanair and easyJet. The financial analysis highlights that the airline has weak short- and long-term liquidity, and that it faces significant default risk. This is evident as Norwegian Air Shuttle ASA is estimated to deliver significant negative cash flows in the short-term. The core DCF-valuation estimates a share price equal to NOK 236 per 01.05.2018, which suggests an overvalued share compared to the value on the Norwegian OBX of NOK 303. The relative valuation using multiples also suggests an overvalued share, which indicates that the DCF-estimate is reasonable. The thesis accentuates that NAS is exposed to default risk and the Liquidation Value method indicates that its equity holders receive NOK 0, in the event of a default. Furthermore, the thesis values Norwegian Air Shuttle ASA from the perspective of the International Airlines Group. This acquisition valuation indicates that its maximum acquisition value of Norwegian Air Shuttle ASA is NOK 486 per share, while the acquiring price is estimated to be located within the bargaining range of NOK 303 – NOK 468. The core valuation is supplemented by scenario and sensitivity analyses, which show that the share price is especially sensitive to the terminal growth rate, production growth and jet fuel costs. The scenario analyses suggest a potential downside and upside in the range of NOK 138 – NOK 282. The analyses show that the DCF-estimation of NOK 236 is reasonable, but highly volatile

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages139