Valuation of Norwegian Air Shuttle ASA

Markus Fürst

Student thesis: Master thesis


This paper features coverage on Norwegian Air Shuttle ASA, indicating a BUY recommendation, a result of a target price equal to 40.05 NOK. This entails a 7.1% upside based on the DCF and EVA method, which is supported by using multiple valuations as a guiding tool. The recommendation is mainly based on:

Norwegian is positioning itself for the future Norwegian has changed their strategic intent, from growth to profitability, therefore positioning the firm to utilize their acquired economics of scale. The firm plans to discontinue unprofitable routes to create a more lucrative route network.

Strategic analysis with mixed findings VRIN-analysis uncovers no sustainable competitive advantage, and a strong competitive environment on the European market is observed through the Porter’s five forces framework. Furthermore, via the PESTEL-analysis it was disclosed that Brexit brings uncertainties, these findings are disadvantageous. Contrarily, growing GDP prospects and favorable demographics indicates an increased future demand in the airline industry which, in addition to lowered oil prices, will be favorable for Norwegian.

Financials are analyzed to be unprofitable, but improving The financial analysis discovers that Norwegian’s current profitability is improving, although negative as ROIC is lower than WACC. This was attributed to high debt-funded investments in order to promote company growth. The firm’s current liquidity is also presently in a bad state: a consequence of increased debt funding in addition to high capital commitments, and a declining share price. Short-term it has been recovering the last fiscal year, whereas long-term it is still unfavorable as the company is highly levered. In the forecast the company is found to become lucrative, due to an increasing ROIC. The firm produces heightened unit revenues and improves their cost management over time.

Lastly, the sensitivity analysis highlights that the fair share price estimate is highly sensitive to changes in WACC and terminal growth rate. Furthermore, COVID-19 is set to increase downside risk and could bring financial problems as Norwegian struggles to generate positive cash flows, thus meet its financial obligations in a time where revenues are slashed as demand is non-existing.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2020
Number of pages106