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Company Valuation of NCC AB

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Company Valuation of NCC AB Company Valuation of NCC AB Copenhagen Business School, 2016 M.Sc. in Economics and Business Administration Supervisor: Finn Østrup Finance and Strategic Management Submission date: 01.06.2016 Master Thesis Authors: Number of pages: 116 Peter Eriksson Number of characters: 195 336 Tobias Forsberg Executive Summary This thesis contains a valuation of the Swedish construction company NCC AB, and ultimately aims to answer the question “What is the fair value per share as the 18th of March 2016?”. The strategic analysis undertakes three well-established frameworks: PEST Analysis, Porter’s Five Forces Analysis, and SWOT Analysis. The aim of these is to present the driving factors, both internal and external, from a macroeconomic-, industrial-, and company perspective, which potentially will affect NCC’s businesses. The findings of the strategic analysis provided an opportunistic outlook for NCC based on the increasing population and urbanization, low expected interest rates, and stable expected GDP growth in especially NCC’s primary market, which is the main source for the company’s business. In addition, NCC’s foreseeing position within technology, environmental consciousness, and brand reputation contributes to a favorable future market position. The financial health of NCC is evaluated in the financial analysis, and considers its ten-year historical development. The revenues have shown an upward-sloping trend after the financial crisis, which indeed affected NCC but from which they have managed to recover. Essential key ratios such as ROE and ROIC are benchmarked against two competitors of NCC, in terms of Skanska and Peab. NCC outperformed its competitors regarding ROE, while Skanska performed better regarding ROIC. In addition, NCC have had the highest profit margin of the three. Based on the findings in the strategic- and financial analyses, NCC’s future have been forecasted. In order to achieve reliable growth estimations, the revenues of NCC have been allocating to respective business area to derive individual growth rates for each one of them. The value per share was calculated by using the well-established valuation models Discounted Cash Flow and Economic Value Added. Theoretically, these two models should generate an identical value but in this case a difference of 1,5 SEK appeared. Despite that, we set the value per share at 375,1 SEK based on the DCF value. This computed value per share was further tested through a sensitivity analysis and multiple comparison. The final conclusion is that the share of NCC is undervalued, and the thesis’ recommendation is set to buy. ii 1 INTRODUCTION ....................................................................................................................................................... 1 1.2 CHOICE OF SUBJECT ....................................................................................................................................................... 1 1.3 RESEARCH QUESTIONS .................................................................................................................................................... 1 1.4 DELIMITATIONS ............................................................................................................................................................. 2 1.5 METHODOLOGY ............................................................................................................................................................ 2 1.6 STRUCTURE OF THE THESIS .............................................................................................................................................. 3 2 NCC GROUP OVERVIEW ........................................................................................................................................... 4 2.1 COMPANY HISTORY ........................................................................................................................................................ 4 2.2 BUSINESS AREAS ........................................................................................................................................................... 4 2.2.1 NCC Construction .............................................................................................................................................. 5 2.2.2 NCC Roads ......................................................................................................................................................... 6 2.2.3 NCC Property Development & Housing ............................................................................................................. 7 2.3 GEOGRAPHICAL MARKETS ............................................................................................................................................... 8 2.4 INDUSTRIAL MACROECONOMIC OVERVIEW ......................................................................................................................... 9 2.4.1 Competitors ..................................................................................................................................................... 10 2.5 CORPORATE GOVERNANCE ............................................................................................................................................ 11 2.5.1 Ownership Structure ....................................................................................................................................... 11 2.5.2 Board of Directors ........................................................................................................................................... 11 2.6 NCC STRATEGY: 2016 – 2020 ...................................................................................................................................... 12 2.7 ACQUISITIONS ............................................................................................................................................................. 14 2.8 NCC SHARE................................................................................................................................................................ 15 2.9 NCC PROJECTS ........................................................................................................................................................... 16 3 STRATEGIC ANALYSIS ..............................................................................................................................................18 3.1 PEST ANALYSIS ........................................................................................................................................................... 19 3.1.1 Political & Legal ............................................................................................................................................... 20 3.1.2 Economic ......................................................................................................................................................... 22 3.1.2.1 Gross Domestic Product (GDP)....................................................................................................................................23 3.1.2.2 Interest Rate................................................................................................................................................................29 3.1.2.3 Inflation Rate ...............................................................................................................................................................33 3.1.3 Social ............................................................................................................................................................... 36 3.1.4 Technological & Environmental ...................................................................................................................... 40 3.1.5 PEST Conclusion .............................................................................................................................................. 42 3.2 PORTER’S FIVE FORCES ................................................................................................................................................. 43 3.2.1 Threat of New Entrants ................................................................................................................................... 44 3.2.2 The Power of Suppliers .................................................................................................................................... 45 3.2.3 The Power of Buyers ........................................................................................................................................ 46 3.2.4 The Threat of Substitutes ................................................................................................................................ 47 3.2.5 Rivalry ............................................................................................................................................................. 48 3.2.6 Porter’s Five Forces Conclusion ....................................................................................................................... 49 3.3 SWOT ANALYSIS......................................................................................................................................................... 50 3.3.1 Strengths ........................................................................................................................................................
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