This master thesis aims to answer the research question: “What is the intrinsic value of Aker BioMarine's equity on October 30, 2020?”. Based on analyses of the financial performance and strategic outlook, we have estimated the future financial performance and cost of capital of Aker BioMarine to value the equity of the company. We have installed both fundamental models and relative valuations to estimate the fair share price. In this chapter, the thesis's vital findings are summarized, and, lastly, we recommend a trading strategy for the stock.
10.1 Summary
The master thesis consists of two components. The first component includes chapters 2, 3, 4, and 5. The second chapter is the introduction to both Aker BioMarine and the krill industry.
The third chapter introduced relevant theories and frameworks applied later in the thesis and argued why the fundamental valuation would carry the most weight in the valuation. It was further elaborated that the relative valuation would be supplementary to the fundamental valuation.
The fourth chapter was an extensive and detailed strategic analysis of the krill industry and Aker BioMarine. The external analysis revealed that the krill industry's competitive environment is moderate, attributed to the considerable entry barriers and limited close competitors. The findings from the external industry analysis indicate that it is possible to
The internal-oriented analysis indicated that the brand name, value chain, patents, and strategic collaborations represent some of the most critical competitive advantages for Aker BioMarine.
It was reasoned that the stated resources provide a short-term competitive advantage, but all the resources are replicable, making a competitive advantage limited. The fifth chapter presents the historical financial analysis of Aker BioMarine. The financial statements were presented, reorganized, and adjusted. The financial statement analysis was limited to three years, as Aker BioMarine was only required to disclose the past three years associated with the initial public offering at Merkur Market. It would be possible to derive more information about the previous years, but as we regard Aker BioMarine to be a high-growth company, we consider the historical financials to have limited importance.
The second component of the thesis includes chapters 6, 7, 8, 9 and 10. The sixth chapter presented the projected financial statements of Aker BioMarine in the coming ten years based on the strategic- and financial analyses in the previous chapters. The seventh chapter presented the cost of capital we expect the company will have in the coming years. The WACC estimate is dynamic until reaching a steady state.
The forecasted statements were utilized in the eight chapter to estimate the equity's fair market value with two different valuation techniques, DCF and EVA. These valuation techniques indicated a fair share price of NOK 96.74. The chapter concluded with a sensitivity analysis of the WACC and growth that illustrated our estimates' sensitivity. The ninth chapter contained the relative valuation where we deployed the multiples EV/EBIT, EV/EBITDA, EV/Sales, and P/E. Based on the enterprise multiples, the median estimate of the fair share price was at NOK 121.40. We decided to weigh the multiple analysis and fundamental analysis with 20.0%
and 80.0%, respectively. This resulted in a final estimation of the fair stock price to be at NOK 101.67.
10.2 Trading strategy
Based on the final estimation of the fundamental value of Aker BioMarine as of October 30, 2020, we present a trading strategy. To evaluate whether the Aker BioMarine stock is underpriced (overpriced) as of October 30, 2020, the estimated value of NOK 101.67 must be compared with the closing price the same day. Due to our estimates' uncertainties, it is decided to present a trading strategy with a buy, hold, or sell recommendation with a deviation of +/- 10% of the value estimation. With this deviation implemented in the strategy, a hold-recommendation will be in the interval of NOK [91.50,111.84].
If the closing price is below NOK 91.50, we recommend buying, is it above NOK 111.84, we recommend selling. If the closing price is in the interval, we recommend holding. As of October 30, 2020, the closing price was at NOK 82.00, which is well below our final valuation estimate. Thus, we recommend BUYING Aker BioMarine on October 30, 2020, as we see a potential upside of 23.98%.
Exhibit 73: Recommended investment strategy
SELL HOLD
BUY
Lower bound: NOK 91.50 Upper bound: NOK 111.84 Closing price on October 30
NOK 82.00
10.3 Closing thoughts
To conclude our thesis, we want to leave the reader with our closing thoughts on three interesting topics and how they can be the basis for though-provoking discussions on why the fair value may differ in the viewpoint of different investors. Firstly, we take a brief glance at how professional equity research analysts are assessing the fair value of the Aker BioMarine share price. Further, we also want to address the significant stock price development that occurred after the cut-off date of our analysis. Finally, we wrap up the chapter with our closing thoughts on the “ESG premium” and its implications for the intrinsic value of a firm.
10.3.1 Analyst target prices as of October 30, 2020
Compared with analyst target prices as of October 30, 2020, our analysis is placed at the low end of the selected range of analysts. On average, the equity analyst's target price is as high as NOK 150.0. At the top of this range, Arctic Securities issued a target price of NOK 185.0.
This represents an upside of 125.6% on the October 30 market value. The most conservative, DNB Markets, has issued the lowest target price of NOK 120.0, a reiteration of their initial NOK 130.0 target price in September.
Figure 40: Analyst target prices as of October 30, 2020
Source: Bloomberg LP (October 30, 2020)
Interestingly, although our price estimate constitutes a 23.98% upside to Aker BioMarine’s pricing in the market as of today, we have issued a target price 15.27% below the lowest price target among the industry analysts. As reasoned throughout our thesis, we believe that the firm is too ambitious on specific projections and metrics, reflected in an overall underperformance compared to their growth guidance releases so far this year. Hence, we place at the bottom of
NOK 185.0
the consensus bracket as it is evident that the equity research analysts seemingly view the magnitude of future growth opportunities and risk differently.
10.3.2 Aker BioMarine’s price development after our cut-date
Aker BioMarine’s price development since its Merkur Market listing on July 6, 2020, can be characterized as volatile. On the first day of trading on the platform, the stock closed at NOK 104.7. From this date until our cut-off date on October 30, the stock fell to NOK 82.0, hovering between a high in the period of NOK 110.0 and a low of NOK 78.2. After drifting around the NOK 80 mark during October and until mid-November, the stock surged by 34% to a price of NOK 109.9 as of closing on December 7, 2020.
Figure 41: Aker BioMarine’s total return before and after the cut-off date (Indexed to 100)
Source: Bloomberg LP (October 30, 2020)
We see two primary reasons for the significant surge: firstly, on November 24, Aker BioMarine launched an all-new business segment called Lysoveta. This segment is intended to produce commercially viable krill-based products with a broad range of applications and health benefits primarily for brain and eye health to a large and fast-growing market (Aker BioMarine, 2020d). In the week following the announcement, the company’s stock price rose by more than 20%.
Second, as illustrated in figure 41, the broader stock market in Norway has been steadily increasing since our cut-off date, and some of the day-to-day stock price increases in Aker BioMarine may also be attributable to the overall positive sentiment in the Norwegian stock market. This overall positive stock market uptick is likely to be closely linked to recent news about several successful COVID-19 vaccine trials (Jack, 2020).
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Oslo Børs All Shares Oslo Børs Seafood Index Aker BioMarine
Cut-off date
Lysoveta announcement