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Relative valuation

In document Strategic analysis (Sider 109-113)

9. The discounted cashflow valuation method (DCF):

10.2 Relative valuation

A relative valuation is conducted as a secondary and indirect valuation of Bonheur. In this chapter, calculations of several multiples are done in order to compare the relative price of the company in relation to its peers. Result-oriented and balance-oriented multiples are both utilized, compared, and commented. The relative valuation is based on Bonheur ASAs closing price and comparable numbers from the cut off day 1st March 2021, which was 229.50 nok. The relative valuation is most useful when access to directly comparable companies are available (Kaldestad & Møller, 2016). The ratios are in this segment calculated for the group of companies and compared with the renewable peers utilized in the forecast. All the companies have similarities in business activities, but also large discrepancies, which is impossible to avoid given Bonheurs unique mix of business activities.

However, given their focus and investments in renewable energy, it is reasonable to compare them with their competitors and previously utilized peers.

Finding correct peer numbers can pose a challenge, and for this we have relied on Refinitivs (Eikon) SmartEstimates (Refinitiv, 2021). These estimates put more weight on the most accurate analysts and recent analyses. It is updated daily and removes estimates that are more than four months old or not updated following significant news.

Page 109 of 148 Refinitiv estimates the expected EPS, EBITDA and different revenue measures for the next financial year, and the smart estimates are therefore seen as the most optimal measure. For comparison, the 2020 average values collected from Orbis are used.

P/B Ratio

The price/book ratio is found by dividing the market value of equity by book value of equity (Kaldestad

& Møller, 2016). The new firm value is then found by average industry PB * book value of equity per share. Bonheurs book value of equity is the share of equity attributable to shareholders of the parent company in 2020.

Figure 64: Price/Book calculations

Bonheurs P/B is found by dividing the stock price with book value per share. Bonheurs ratio is below both averages, and significantly below the most accurate Refinitv average. Orbis gives a price slightly below the DCF price, while Refinitv industry average gives a significantly higher price, with an equity value per share of 295.9. The P/B for Enel SpA relatively high P/B is not available in the Orbis database, which can explain some of the difference. Bonheurs P/B ratio is below the industry average, which is not explained by their diversification in industries.

According to Damodaran (2021b) the P/B average for Publishing & Newspapers in Europe is 2.28.

And P/B ratios for the selected peers in Media is 3.15 and Cruise 3.08 (Refinitiv, 2021). Ørsted and Vestas increase the average P/B, these stocks have both seen significant stock price increases over the last year, which could explain their high P/B relative to the industry.

Page 110 of 148 The trading premium can have many explanations, but a general belief in these renewable stocks by investors is no exaggeration. And more focused renewable energy companies trade at a relatively higher price than Bonheur according to the P/B ratio.

EV/EBITDA

According to Kaldestad and Møller (2016) Enterprise value is calculated by the following formula:

For market value of equity, the observable price on the 1st of March 2021 has been multiplied with outstanding shares. For debt, the book value of financial debt in the analytical balance statement has been used. According to Kaldestad & Møller (2016) and Damodaran (2006), most analysts consider book value as a reasonable estimation of debt for valuation purposes. Alternatively, the book value of interest-bearing debt in the reported balance sheet could be used. Given the thesis focus on the valuation of the underlying operations in Bonheur, the financial obligations presented in the analytical balance statement has been considered as the most accurate estimation of Bonheurs financial debt, and thus used as debt in the relative valuation. EV/EBITDA data have been retrieved from Refinitiv and Orbis, see Appendix (XXx EV/EBITDA calculations). Comparable EV is found by industry average EV/EBITDA * EBITDA Bonheur, cash is added, and debt subtracted, to find the comparable equity value for the multiple.

Equity value per share is -72.1 for the relied upon Refinitiv SmartEstimate, Orbis industry average gives 3.4 equity value per share. EV/EBITDA is significantly higher than the peer group average.

Damodaran (2021) operates with a higher EV/EBITDA for Green & Renewable Energy in Western Europe with 23.22, also well below Bonheurs. As illustrated in the financial analysis, Bonheurs EBIT margin for 2020 was approximately -14%, therefore analysing their EV/EBIT for comparison is not appropriate.

Figure 65: EV/EBITDA calculations

Page 111 of 148 Damodaran (2021) operates with industry averages for 98 industries, and Green & Renewable energy EV/EBITDA multiple is among top 10% highest. The generally high EV/EBITDA multiple indicates that investors believe in a stronger profitability in the future. Refinitvs estimate for next year indicates that investors believe in significantly higher EBITDA the next year. Bonheurs EBIT and EBITDA margin is low compared to peers generally, and their 2020 numbers especially, due to the stop in Cruise traffic. The multiple value is in accordance and underpin the results from the financial analysis.

EV/Revenue

The enterprise value to revenue multiple measure's ability to produce revenue, contrary to operating earnings found in the EV/EBITDA multiple. To find the comparable implied enterprise value, revenue is multiplied with the comparable multiples. Otherwise, calculations and data collection are like the above EV/EBITDA analysis, and revenue is found in the reformulated income statement (see Figure 17).

Figure 66: EV/Revenue calculations

Bonheurs EV/R is significantly lower than the industry average, the relied on multiple from Refinitiv, gives a share price of 309.16. As seen in the financial statement analysis, Bonheur has some problems with converting revenue to operating profits, and this can explain the peers' higher multiple value. It is worth noting that the industry expectations are for lower EV/R, compared to the historical Orbis. Indicating that investors believe that the industry will be more profitable in the future.

Page 112 of 148 Summary of relative valuation

Relative valuation works best for companies in the same industry and with similar market capitalization. It is solely based on casual observations and does indeed not paint the full picture.

According to Damodaran (2021), the multiple values for the renewable industry are overall high, therefore multiples indicating that Bonheur is under-priced, could just as well be symptoms of an overpriced industry. Bonheur is also substantially diversified and comparing a company with cruise and media built into their multiples, makes the relative valuation more uncertain. However, Bonheurs heavy investment in the renewable industry makes the comparison fairer, since investing in Bonheur is considered a renewable energy investment, the company has even issued green bonds. The multiple valuation indicates that the company is under-priced on the balance oriented multiple P/B, the two result-oriented multiples give completely different answers. Their revenue compared to enterprise value indicates an under-priced company, but their ability to convert revenue to profit, EV/EBITDA, indicates the exact opposite. This is in line with the findings in our financial analysis.

In document Strategic analysis (Sider 109-113)