What can be done to increase the value of Statoil ASA? Analysis of the discrepancy between theoretical value and stock price

Abstract

The trend of Statoil’s stock price has remained flat over the course of the last few years, gaining the attention of investors and managers and creating doubts among them as to whether Statoil’s shares are correctly priced on the market. The intention of this thesis is to find a theoretical value of Statoil’s share and compare it with its market price in order to find any discrepancy. For this purpose, three different valuation methods were utilized; Market Comparables method, Discounted Cash Flow and Residual Earnings, resulting in a value per share of 286 NOK, 165,7 NOK and 146,7 NOK respectively. After analysis, the conclusion of this valuation is that Statoil market share price is consistent with real company value, but Statoil has a comparatively low price when compared with its peer group.

During the writing of this thesis, Statoil announced its new strategy to create value and growth. This strategy was also entered into the valuation through two scenarios (a scale-back of CAPEX and a reduction in costs) in order to analyses the impact it would have on the share value. After analysis, the result of this “scenario biased” valuation was that each of the scenarios included in the new Statoil strategy are expected to have a positive impact on the share value.