9. RELATIVE VALUATION
9.2 R ELATIVE VALUATION ANALYSIS
Before we start our relative valuation analysis, we collect the necessary financial information of our comparable companies. This includes calculating the firms’ enterprise value, which requires financial information such as market capitalization, financial debt, minority interest, and cash and marketable securities. Given the time we have at hand to complete our master thesis and consideration of costs and benefits, we decided not to perform a full reorganization of the ten comparable firms' financial statements. We dug into each company’s financial statements and collected relevant market values to extract the information relevant for our comparable company analysis. This includes the market value of equity as of October 30, 2020, and the latest financial data publicly available for each firm to estimate enterprise value on the same date. Moreover, we also extracted the latest available equity analyst consensus estimates for forward-looking EBITDA, earnings, and sales from the Bloomberg Terminal on October 30, 2020.
Exhibit 62: Enterprise value calculation Ingredients segment (USD thousands)
Enterprise value calculation: Ingredients comparable companies
In USD thousands ($) DSM Novozymes Probi Biogaia AAK
Relevant USD FX rate (30.10.20) 1.17 0.16 0.11 0.11 0.11
Price per share (30.10.20) 160.2 60.1 43.5 47.6 19.5
Shares outstanding 181 430 286 600 11 394 17 336 254 391
Market capitalization 29 067 960 17 211 486 495 830 824 484 4 953 709
Financial debt 4 388 597 853 358 6 446 2 003 550 944
Cash & marketable securities (2 011 877) (133 836) (23 556) (32 835) (128 359)
Non-controlling interest 106 072 1 720 - 0.2 10 219
Enterprise value 31 550 752 17 932 729 478 720 793 652 5 386 513 Source: Annual and quarterly reports for all companies, 2020
Exhibit 63: Enterprise value calculation Brands segment (USD thousands) Source: Annual and quarterly reports for all companies, 2020
9.2.1 Price-to-Earnings
𝑃𝑟𝑖𝑐𝑒 − 𝑡𝑜 − 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 ("EPS") Eq.28 The first multiple in our relative valuation analysis is the Price-to-Earnings ratio. This multiple is one of the most frequently used peer valuation metrics among financial analysts and other finance practitioners. Firstly, in our P/E analysis, we extract the earnings per share consensus estimates from the Bloomberg Terminal along with the price per share data on October 30.
Exhibit 64: Actual EPS ’19 and forward-looking consensus estimates ’20-’21-’22
Peer valuation: Price-to-Earnings
We calculate P/E as in Eq. 28 by dividing price per share over EPS, showcased in exhibit 64.
The relevant input for each computation is presented in appendix 7. It is worth noting that Aker BioMarine did not deliver positive earnings in 2019 and is not expected to do so in our 2020 estimates. Further, since we anticipate that 2021 is the first year of positive net income for the company, our estimates are relatively conservative, and the firm is priced in the marketplace at the highest 2021 forward-looking multiple among its peers.
To compute our final price per share based on P/E multiples, we multiply Aker BioMarine’s estimated earnings with the corresponding median multiple for both segments in each given year. In our selected year of analysis, 2021, Aker BioMarine’s implied valuation is NOK 70.8 per share on Ingredients multiples and as low as NOK 41.2 on Brands multiples. After applying the weights introduced in our introduction, we arrive at a final weighted stock price of NOK 61.3 per share. The full range of valuation estimates of Aker BioMarine’s market value of equity per share based on historical and future earnings are presented in exhibit 65.
2021E multiples are highlighted as this is our primary year of analysis.
Exhibit 65: Price-to-Earnings relative valuation analysis of Aker BioMarine
Aker BioMarine: Price-to-Earnings relative valuation
In USD 2019A 2020E 2021E 2022E
Aker BioMarine EPS basis - - 0.22 0.29
Ingredients median multiple 36.4x 37.1x 34.3x 31.7x
Brands median multiple 26.0x 24.8x 20.0x 18.0x
Aker BioMarine implied USD price
(Ingredients)* - - 7.5 9.1
Aker BioMarine implied USD price
(Brands)* - - 4.4 5.2
Price per share: Ingredients (NOK)* - - 70.8 86.6
Price per share: Brands (NOK)* - - 41.2 49.1
Weighted price per share (NOK) - - 61.3 74.6
* Negative values removed for visual purposes
9.2.2 EV-to-Sales
𝐸𝑉 − 𝑡𝑜 − 𝑆𝑎𝑙𝑒𝑠 = 𝑇ℎ𝑒 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑒𝑡 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑒𝑏𝑡
𝑆𝑎𝑙𝑒𝑠 Eq.29
Exhibit 66: Actual sales ’19 and forward-looking consensus estimates ’20-’21-’22
Peer valuation: EV-to-Sales
EV-to-Sales is an enterprise value multiple frequently used in the relative valuation of firms that operate in industries with volatile or negative profits, such as start-up industries or cyclical industries. In its traditional sense, the krill industry is not new, but due to heavy growth and investments in recent years to become commercially viable and potentially highly profitable, it shares the same characteristics as industries in its early phases. All peer group multiples based on actual sales and forward-looking consensus estimates are summarized in exhibit 66 above.
The final estimate of Aker BioMarine’s share price based on EV-to-Sales multiples is determined in three steps. First, we multiply the company’s sales in each given year by the corresponding segment median multiple to get the enterprise value. From this, we add the firm’s excess cash and marketable securities and subtract the market value of debt to get the implied value of Aker BioMarine’s equity. Finally, we divide the implied market value of equity by the shares outstanding and convert the price to NOK to get the NOK price per share.
Aker BioMarine’s implied price per share of NOK 209.5 in 2021 on Ingredients multiples is significantly higher than the NOK 51.4 based on median Brands EV-to-Sales multiples. Our final weighted valuation estimates for 2021 is NOK 158.9 per share.
Exhibit 67: EV-to-Sales relative valuation analysis of Aker BioMarine
Aker BioMarine: EV-to-Sales relative valuation
In USD thousands 2019A 2020E 2021E 2022E
Aker BioMarine sales basis 246 170 298 367 414 023 484 666
Ingredients median multiple 7.2x 5.9x 5.5x 5.1x
Brands median multiple 2.1x 2.1x 2.0x 2.0x
Exhibit 68: Actual EBIT ’19 and forward-looking consensus estimates ’20-’21-’22
Peer valuation: EV-to-EBIT
EV-to-EBIT is an enterprise value multiple measuring EV on top of earnings before financial items and is one of the most used multiples by practitioners (Knivsflå, 2020f). Due to the inclusion of depreciation and amortization, this ratio takes into account the future need for maintenance and re-investments. Our peer group multiples will be calculated as in Eq. 30.
As with the Price-to-Earnings multiple, it is worth noting that Aker BioMarine trades at significantly inflated multiples on actual 2019 EBIT and 2020 estimates compared to its peers.
Some of the share price computations in 2019 and 2020 earnings will consequently come back as negative values, and these are excluded from our analysis and visualization of estimates in exhibit 69. Nonetheless, this does not affect our final value estimate based on 2021 earnings.
From our forecasted EBIT basis of ~USD 46.80mn in 2021, we ultimately obtain a price per share of NOK 78.3 based on our selected comparable companies' market value.
Exhibit 69: EV-to-EBIT relative valuation analysis of Aker BioMarine
Aker BioMarine: EV-to-EBIT relative valuation
In USD thousands 2019A 2020E 2021E 2022E
EBIT basis 10 108 15 581 46 797 59 905
Ingredients median multiple 29.6x 29.5x 25.8x 22.8x
Brands median multiple 22.4x 21.4x 16.8x 16.3x
Aker Bio EV range (Ingredients) 299 304 458 912 1 207 315 1 366 034
Aker Bio EV range (Brands) 226 648 332 646 785 046 974 721
Cash and marketable securities 6 485 6 485 6 485 6 485
Financial debt (355 354) (355 354) (355 354) (355 354)
Minority interest - - - -
Implied equity value (Ingredients)* - 110 044 858 446 1 017 166
Implied equity value: (Brands)* - - 436 178 625 852
Price per share: Ingredients (NOK)* - 11.9 92.9 110.1
Price per share: Brands (NOK)* - - 47.2 67.7
Weighted price per share (NOK) - 11.9 78.3 96.5
* Negative values removed for visual purposes
9.2.4 EV-to-EBITDA
𝐸𝑉 − 𝑡𝑜 − 𝐸𝐵𝐼𝑇𝐷𝐴 = 𝑇ℎ𝑒 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑒𝑡 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑒𝑏𝑡
𝐸𝐵𝐼𝑇𝐷𝐴 Eq.31
Exhibit 70: Actual EBITDA ’19 and forward-looking consensus estimates ’20-’21-’22
Relative valuation: EV-to-EBITDA
In USD thousands Basis (EV) EV/EBITDA '19 EV/EBITDA '20E EV/EBITDA '21E EV/EBITDA '22E
DSM 31 550 752 16.7x 16.9x 15.2x 14.1x
Novozymes 17 932 729 22.6x 22.9x 22.0x 20.9x
Probi 478 720 24.7x 20.2x 18.9x 17.3x
Biogaia 793 652 29.1x 27.5x 24.2x 21.4x
AAK 5 386 513 17.9x 16.3x 14.9x 14.1x
Median ingredients 22.6x 20.2x 18.9x 17.3x
Orkla 10 575 865 13.6x 13.4x 12.5x 12.2x
Procter & Gamble 378 893 180 19.8x 18.2x 17.3x 16.2x
Nestlé 366 932 240 17.8x 17.9x 17.4x 16.7x
Midsona 621 951 20.3x 13.8x 11.1x 10.3x
Glanbia 3 553 521 9.8x 11.2x 9.6x 8.7x
Median Brands 17.8x 13.8x 12.5x 12.2x
Aker BioMarine 1 099 345 20.7x 17.3x 12.2x 9.9x
The final enterprise value multiple included in our relative valuation analysis is the EV-to-EBITDA multiple. The EV-to-EV-to-EBITDA peer valuation input and median multiples are summarized in exhibit 70. To see our full range of forward-looking inputs to derive the multiples, we refer to appendix C. As with the previous multiple valuation ratios, Ingredient peers are consistently trading at notably higher multiples in comparison to Brands companies and Aker BioMarine. We explain this with the considerable growth expected in the ingredients market in coming years, leading to a high multiple for companies in this peer group.
Further, a relative valuation of the firm’s price per share on EV-to-EBITDA multiples is computed in the same manner as for EV-to-Sales multiples. From an EBITDA basis of USD 90.06mn in 2021E, Aker BioMarine is priced at NOK 146.8 per share on the Ingredients median and NOK 84.5 on the median multiple of peers in the Brands segment. As seen in exhibit 71, our final weighted share price is NOK 126.9.
Exhibit 71: EV-to-EBITDA relative valuation analysis of Aker BioMarine