Valuation of Nordic Nanovector ASA

Abstract

The purpose of this paper is to conduct a valuation of Nordic Nanovector ASA through the use of both traditional discounted cash flow models and real option analysis. We have therefore arrived at three different estimates for the company value. The calculated company values are NOK 6.133.507.000, NOK 3.260.601.301, and NOK 3.946.287.020 generated from the static discounted cash flow model, expected net present value model, and real options analysis respectively. Bearing in mind that Nano currently have 49 091 683 shares outstanding and presupposing the same order as above, we obtain a distribution of share prices equal to NOK 124.94, NOK 66.42, and NOK 80.39. All these are larger than the observed prevailing share price for the stock at Oslo stock exchange, amounting to NOK 50.95 for May 31, 2018. The paper begins by briefly accounting for our choice of thesis topic and list of topic questions to be answered. Further information about the company and the biotech industry is then presented, in order to provide the reader with necessary insight and some context. Next we give an account of the financial theory underlying our reasoning and approach throughout the paper, before we proceed by conducting a strategical analysis for Nano’s attributes. The strategical analysis is then complemented by an analysis of the historical statements, to create a solid foundation for the subsequent forecasting of the models important inputs. Based on the forecasted cash flows and the calculated cost of capital in the previous step, we are then ready to perform the actual valuation. Two net present values have been calculated for the project. A static NPV estimate have been calculated by applying an unadjusted discounted cash flow model, and an expected NPV estimate have been calculated by probability adjusting the same DCF model. However, in order to value the inherent flexibility of the project, we must also apply a real options analysis. The real option analysis follows the process outlined by Mun (2006), and utilizes the Real Options Super Lattice Solver software to estimate the total company value of Nano, flexibility included. The paper ends with a sensitivity analysis aimed at assessing the reasonability of the generated estimates, a discussion of the papers findings, and ultimately a conclusions addressing the topic questions