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Is GN Store Nord Priced at a Conglomerate Discount? - a Valuation of GN Audio & GN Hearing

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Is GN Store Nord Priced at a Conglomerate Discount? - a Valuation of GN Audio & GN Hearing Master’s Thesis Is GN Store Nord Priced at a Conglomerate Discount? - A Valuation of GN Audio & GN Hearing Konglomerat rabat i GN Store Nord – En Værdiansættelse af GN Audio og GN Hearing. Alexander Rosenkrans & Fredrik Myrvold MSC. FINANCE AND ACCOUNTING Supervisor: Palle Nierhof Date of Submission: 15TH May 2017 Number of Pages: 120 Number of Characters Incl. Spaces: 272.266 Number of Standard Pages: 120 EXCECUTIVE SUMMARY: Empiriske undersøgelser har vist at konglomerat selskabers divisioner, hver for sig, repræsenterer en højere værdi end når de værdiansættes som en enhed, derved bliver konglomerat selskaber historisk set værdifastsat lavere, end summen af konglomerat selskabers divisioner hver for sig. Dette betyder at konglomeraters aktiekurs ofte indeholder en rabat, kaldet konglomeratrabat. I denne afhandling er konglomeratrabattens eventuelle eksistens og eventuelle påvirkning på konglomeratet GN Store Nord, undersøgt. Før denne analyse blev gennemført, blev det det teoretiske fundament for konglomeratrabat gransket. De hyppigste forklaringer på konglomeratrabatters eksistens relaterer sig til agent omkostninger og ulemper ved interne kapitalmarkeder. Diskussion omkring agent omkostning tager oftest udgangspunkt i forskellighederne imellem aktionærens og ledelsens risiko profiler. Teorier, der relaterer sig til interne kapitalmarkeder forklarer, at ressource allokeringer mellem divisioner ofte lider under konkurrence fra divisioner med dårlig rentabilitet. Afhandlingen fokuserer primært på at undersøge hvorvidt konglomeratrabat eksisterer i GN Store Nord. Denne analyse tog sit udgangspunkt i en DCF analyse af GN Store Nords to divisioner; GN Audio og GN Hearing. Begge divisioner er værdiansat som individuelle enheder. Divisionernes estimerede markedskurs udgjorde den 09.02.2017, som følge af DCF modellens beregninger DKK 192,35. Sammenholdes dette estimat med markedsværdien på aktiekursen DKK 152,82 per samme dato - var det tydeligt, at vi kom frem til en rabat i aktiekursen. Disse resultater var robuste sammenholdt med en EV/EBITA multipel værdiansættelse på divisionernes fire mest sammenlignelige ”peers”, da denne metode afspejlede en aktiekurs mellem DKK 184 – DKK 218. En følsomhedsanalyse blev gennemført, for at teste robustheden af DCF modellens kritiske forudsætninger omkring følsomhed overfor ændringer i afkastkravsberegningen og de budgetterede cash flows. Denne analyse konkluderede, at modellens resultater var særdeles følsom i forhold til disse forudsætninger og ændringer hertil fastslog, at der kunne blive handlet til både en præmie og en rabat. På grund af DCF modellens åbenlyse subjektivitet, afsøgtes herefter teoriens forklaringer. Formålet hermed var at undersøge de forskellige teoriers forklaringer på hvorfor konglomerat rabatter opstår – i forhold til situationen på GN Store Nord. Der blev foretaget seks analyser, hvor konklusionerne var varierende. Tre af analyserne indikerede, at fænomenet konglomeratrabat kunne optræde i GN Store Nord, mens to konkluderede at disse forklaringer ikke understøttede konklusionen omkring konglomerat rabat. Den sidste undersøgelse gav ikke et entydigt svar. De tre teorier, der støttede en konglomerat rabat i GN Store Nord, relaterede sig til diversitet i konglomerat selskabers ressourcer, R&D investeringers effektivitet i konglomeratet og sluttelig uoverensstemmelse mellem ledelse og aktionærer omkring deres kapital struktur. Da alle disse undersøgelser inkluderede indbyggede antagelser, kan det ikke konkluderes, at konglomerat rabat med sikkerhed optræder i GNSN. 1 TABLE OF CONTENTS Excecutive Summary: .................................................................................................................................... 1 1. Introduction ........................................................................................................................................... 4 1.1 Context and Motivation ....................................................................................................................... 4 1.2 Problem Statement .............................................................................................................................. 5 1.3 Methodology ....................................................................................................................................... 8 1.4 Delimitation and Assumptions .......................................................................................................... 10 1.5 GNSN as a conglomerate: ................................................................................................................. 11 2. The conglomerate discount phenomenon ............................................................................................ 11 2.1 The Conglomerate Rationale ............................................................................................................. 12 2.2 Conglomerate discount development ................................................................................................ 16 2.3 Overview of Conglomerate theory .................................................................................................... 18 2.4 Explanations for the Conglomerate Discount .................................................................................... 19 2.5 Other explanations for a discount in conglomerates: ........................................................................ 25 3. Strategic Analysis .................................................................................................................................... 26 3.1 GN Audio .......................................................................................................................................... 26 3.2 SWOT Analysis – GN Audio ............................................................................................................ 34 3.3 GN Hearing ....................................................................................................................................... 36 3.4 SWOT Analysis – GN Hearing ......................................................................................................... 41 4. Financial Analysis ................................................................................................................................... 42 4.1 Reclassifications of GNSN’s divisions: ............................................................................................ 43 5. Profitability Analysis: .............................................................................................................................. 46 6. Benchmarking Profitability Against a Peer Group .................................................................................. 55 7. Forecasting: ............................................................................................................................................. 58 7.1 GN Audio .......................................................................................................................................... 59 7.2 GN Hearing ....................................................................................................................................... 66 7.3 Quality of the Estimates in the Forecasted Pro-Forma Statements ................................................... 73 8. Cost of Capital ......................................................................................................................................... 75 8.1 Risk-free rate ..................................................................................................................................... 75 8.2 Equity Market Risk Premium ............................................................................................................ 76 8.3 Beta .................................................................................................................................................... 78 8.4 Cost of Equity .................................................................................................................................... 81 8.5 Cost of debt ....................................................................................................................................... 82 8.6 Capital Structure ................................................................................................................................ 84 2 8.7 WACC ............................................................................................................................................... 87 9. Valuation ................................................................................................................................................. 88 9.1 Discounted cash flow model (DCF) .................................................................................................. 88 9.2 Valuation Sanity Check through market multiples ............................................................................ 90 9.3 Discount/Premium ............................................................................................................................. 93 10. Sensitivity Analysis ............................................................................................................................... 94 11. Conclusions from the valuation ............................................................................................................. 97 12. Applying Theoretical Explanations to GNSN ......................................................................................
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