AF gruppen - valuation and case study on economic moats

Abstract

Economic moats represent sustainable competitive advantages that allow companies to protect their value and lead to excess returns over a long-term horizon (Morningstar, 2016). This sentence lays the fundament for this thesis in a way that we will elaborate on the subject of economic moats; what it is, how it’s obtained and how it’s valued. Legendary investor Warren Buffett and CEO of Berkshire Hathaway once said the following: “The most important thing to me (when considering an investment) is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.” – (Buffet, 1994). The subject has to some extent been discussed in other literature and whether or not an economic moat creates excess return has been tested empirically, to be discussed later on. However, we wish to put the matter into context by performing a case study on AF Gruppen, where we will perform a fully-fledged valuation of the company and attempt to value their suspected moat using the frameworks and theories soon to be introduced.