Valuation of Marine Harvest: fundamental analysis of the value of Marine Harvest ASA

Abstract

This thesis examines the value of Marine Harvest ASA per December 17, 2015. The analysis was performed by using fundamental and relative valuation approaches and the assumptions made in the analysis was made on the basis on throughout analyses of the macro, industry and firm-specific drivers of value in the salmon farming industry. The share price was derived exploring six key factors affecting the cash flows, risk and financial structure of MHG. First, the strategic analysis finds that economic conditions are favorable for the export of Norwegian salmon, but that opportunities for organic growth are limited because of health- and environmental issues and the strictly regulated access to licenses. The industry has consolidated largely and this is likely to be the main driver of growth for MHG. Second, I find that operational margins have been persistently stable, and hence I conclude that historical margins will also be applicable for the forecast period. Third, the salmon prices are expected to increase slightly from the current levels while feed cost is expected to decrease due to MHG’s upstream integrations into feed production. MHG’s harvest volumes are expected to increase in line with historical growth consolidation and limitations of licenses taken into account. Fourth, the income growth from the VAP market is predicted remain strong, much due to the acquisition of Morpol in 2013. Fifth, the cost of capital is expected to remain relatively low as a result of historically low interest rates in the Norwegian economy that is expected to persist. The risk associated with an investment in MHG is moderate, considering MHG’s strong financial position and that the food industry is less volatile than the overall market. Last, the fundamental valuation suggests that the fair share price of MHG is NOK 125, which is also supported by the relative valuation. Hence I conclude that MHG is slightly undervalued at the current trading price, and a buy recommendation is appropriate.