Business Analysis and Valuation of Equinor ASA.
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The purpose of this master thesis is to estimate a theoretical equity value of Equinor ASA and thereby the value per share per as of December 30th, 2021. The valuation is conducted based on two financial valuation methods, fundamental and comparable valuation. The first part of the thesis provides a presentation of Equinor ASA and the energy industry, including BP, ConocoPhillips and Shell as comparable companies. External and internal strategic analyses were conducted. In the external analysis we found that the largest opportunities in the industry lie in technology and innovation, since this has the potential to improve environmental conditions. Moreover, the analysis of Equinor’s internal resources disclosed that the company holds a competitive advantage through the exploration license granting. Furthermore, the company holds a competitive parity due to the CCS technology. Additionally, Equinor faces a risk of a reduction in the oil price, seeing that most of the company’s revenue stems from oil and gas. Due to climate issues and the net zero emission goal, the company must keep investing in renewables and carbon solutions. This is necessary to retain their competitive position and future cash flows. Oil and gas are expected to be phased out in the energy transition. Therefore, we recognize the need for Equinor to maintain the development of technology and innovation within renewables to ensure the long-term survivability of the company. The insight gained from the strategic analysis formed a foundation which, in addition to the financial analysis, allowed us to forecast the future performance of the company. This resulted in a forecasted cash flow from 2022 to 2028. This forecast created the basis of our fundamental valuation, where we discounted the future cash flows and terminal value. Through the fundamental valuation, we estimated a value per share of USD 41.10. Furthermore, the average value per share from the comparable valuation was USD 29.42. There are variables included in the forecasts that are sensitive to changes and sources of error that can have implications on the company´s future cash flows and profitability. However, our valuations indicate that Equinor´s share is undervalued in the market, considering that the share price on December 30th, 2021, was USD 26.82. Thus, we recommend shareholders to hold their position.