Strategic analysis & fundamental valuation of Solstad Offshore ASA

Abstract

This master thesis, in the field of financial economics, is written with the purpose of valuing Solstad Offshore ASA’s equity at 31.12.2012. Solstad’s price per share at 31.12.2012 was NOK 100. The reason why we estimate from this date is due to the late annual report for 2013. Two valuing methods are applied – fundamental valuation and comparable valuation. The comprehensive thesis can be divided into five sections: - Strategic Analysis - Financial Statements Analysis - Future Estimated Financial Statements & Cost of Capital - Fundamental Valuation - Summary and Recommendation In the strategic analysis internal and external analyses are conducted. VRIO is applied for the internal analysis, Porter’s Five Forces, and PESTEL. In the financial statement analysis, the purpose is to reformulate balance sheets and normalize income statements. The next step is to estimate future financial statements and cost of capital. There are many key variables that have been predicted. These predictions are based on the strategic analysis and the reformulated financial statements. Future cost of capital is estimated to discount future cash flows. The spread between the fundamental value and the comparable value was quite large. The fundamental price per share was estimated to be NOK 162 and the comparable price was estimated to be NOK 118. This represents an increase from Solstad’s price per share per 31.12.2012 of 62 % and 18 % respectively. The comparable valuation supports our view of undervaluation, however, it is not as positive as the estimated fundamental value. We recommend buying the stock up to the going rate of NOK 145.8.