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Valuation of Scatec Solar an Investment Case

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Valuation of Scatec Solar an Investment Case Valuation of Scatec Solar An investment case Milad Sherifi Sakizi & Pierre André Perroud Master thesis, Copenhagen Business School, June 15th 2018 MSc Finance and Strategic Management Supervisor: Jens Borges Number of pages & characters: 109 pages & 194 845 characters Milad Sherifi Sakizi Pierre Andrè Perroud 108027 105985 0 Executive Summary A fundamental valuation analysis of the publicly listed solar power producer Scatec Solar ASA is conducted as of 01.03.2018. Based on a strategic, quantitative- and financial analysis a set of findings have been presented. The solar photovoltaic industry has grown remarkably over the years, driven by technological advancements, increased Scatec Solar Share Price 42.85 global population, geographical shift in production and Target Price 58.41 declining module prices. In addition, policies and support Upside 36.31% mechanisms have been hugely important for the Sector Alternative Energy Ticker SSO-OS competiveness of solar PV. With the Paris Agreement the Key Data 01.03.2018 solar PV industry have benefitted from more attention. No. Of Shares (m) 103.412 Market Cap (bn) 4.4 The combination of the vertical value chain and the focus on NIBD 4.712.540 EV 9.143.762 local value creation have made SSO an attractive player in EBITDA Q4 2017 (m) 208.188 the industry, as they can provide a full-fledged project and will benefit local communities. This has resulted in SSO having operations in multiple markets worldwide. The successful track record of operating in these complex markets have lead serious financial partners to continue their partnerships with them. As of 01.03.2018, SSO have 322MW in current projects, 394MW under construction, 789MW backlog and a pipeline of 745MW. Following numbers shows a promising outlook for the company in the forecasted period. In view of these findings, a target price of NOK 58.41 indicates that the share price is undervalued with a potential upside of 36.31%. Even though the estimated share price is exposed to uncertainty, there is less uncertainty associated with the potential upside of SSO’s share price. Accordingly, a buy recommendation is considered appropriate for SSO. 1 Table of Contents Executive Summary .............................................................................................................................................. 1 1. Introduction ....................................................................................................................................................... 5 1.1. Motivation ................................................................................................................................................... 5 1.2. Research Question ...................................................................................................................................... 6 1.3. Methodology ............................................................................................................................................... 7 1.4. Delimitations and Assumptions ................................................................................................................. 8 1.5. Evaluation of sources ................................................................................................................................. 9 2. Sector overview ................................................................................................................................................ 10 3. Industry overview ............................................................................................................................................ 11 3.1. Development ............................................................................................................................................. 11 3.2. Module price decrease .............................................................................................................................. 13 3.3. Geographical shift and expansion ........................................................................................................... 15 3.4. Policies and Support Mechanisms .......................................................................................................... 16 3.5. Tax incentives ........................................................................................................................................... 16 3.6. Power Purchase Agreement (PPA) ......................................................................................................... 17 3.7. Feed-in tariffs (FITs) ................................................................................................................................ 17 3.8. Auctions ..................................................................................................................................................... 17 4. Company overview .......................................................................................................................................... 19 4.1. History ....................................................................................................................................................... 19 4.2. Company presentation ............................................................................................................................. 20 4.3. Vision, Strategy and Business Model ...................................................................................................... 22 4.4. Ownership Structure ................................................................................................................................ 23 4.5. Share performance ................................................................................................................................... 24 4.6. Competitive environment – Peer group .................................................................................................. 24 5. Strategic Analysis ............................................................................................................................................ 26 5.1. PESTLE .................................................................................................................................................... 26 5.1.2. Economic factors: .............................................................................................................................. 29 5.1.3. Socio-cultural factors ........................................................................................................................ 31 5.1.4. Technological factors ........................................................................................................................ 32 5.1.5 Environmental .................................................................................................................................... 33 2 5.2. Porters Five Forces ................................................................................................................................... 34 5.2.1. Threat of new entrants ...................................................................................................................... 35 5.2.2. Power of suppliers ............................................................................................................................. 36 5.2.3. Power of buyers ................................................................................................................................. 36 5.2.4. Threat of substitutes .......................................................................................................................... 37 5.2.5. Industry rivalry ................................................................................................................................. 38 6. Internal Analysis ............................................................................................................................................. 39 6.1. Determining key success factors .............................................................................................................. 40 6.2. Comparing industry KSF with SSO’s resources and capabilities ........................................................ 40 6.2.1 Government subsidies: Long-term contracts ................................................................................... 41 6.2.2. Slashing production costs: Integrated business model and SPV ................................................... 41 6.2.3. Scaling up through mergers and partnerships: Prominent partners and joint ventures ............ 42 6.2.4. Other resources: Local value creation ............................................................................................. 43 7. SWOT ............................................................................................................................................................... 45 8. Financial Analysis ........................................................................................................................................... 45 8.1. Accounting quality ................................................................................................................................... 46 8.1.1. Motives for accounting manipulation .............................................................................................. 46 8.2. Reformulation of income statement and balance sheet ........................................................................
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