Valuation of Vår Energi

Abstract

This thesis presents a strategic analysis and valuation of Vår Energi ASA as of the 1 st of April 2023. Vår Energi is publicly listed on the Oslo Stock Exchange under the ticker VAR. The stock traded at NOK 25.52 on the 1 st of April 2023. The study employs fundamental and relative valuation methods, and all estimates are based on publicly available information. The primary research question addressed in this paper is: “Is it still worth buying a company such as Vår Energi, which only operates and invests in Oil & Gas?” The valuation of Vår Energi commences with a comprehensive strategic analysis of its external and internal environment, which reveals that the Norwegian Oil & Gas industry is exposed to several risks that could significantly impact future growth and value creation. A renewable energy model is constructed to forecast the Oil & Gas prices for the next four years and to predict the revenue of Vår Energi. The model is based on supply and demand related to the assumption that renewable energy will replace fossil fuels as commitment to net zero 2050 is assumed. Further, a detailed analysis of historic financial statements is conducted to forecast Vår Energi’s future performance. Future performance estimates rely on industry outlooks and guidance provided by Vår Energi. After forecasting future performance, the cost of equity and cost of debt are estimated to be respectively 9.53% and 4.40%. Vår Energi’s market value of equity is higher than its interest-bearing debt, resulting in a weighted average cost of capital of 9.36%. Based on the forecasted cash flows and the weighted average cost of capital estimate, the implied value of Vår Energi's share is 22.17 NOK. The relative valuation based on comparable companies provides an estimated value of 23.52 NOK per share. A sensitivity analysis was conducted, revealing that the value per share is highly sensitive to the assumptions made. Given a share price of 25.52 NOK as of the 1 st of April 2023 and the final value estimate of 22.17 NOK per share, a sell recommendation is made for Vår Energi ASA.