A valuation of Norwegian ASA in COVID-times

Abstract

This thesis aims to estimate the value of Norwegian Air Shuttle ASA, both pre- COVID and in 2021, to assess the effect of the pandemic. Our thesis concludes whether support from the government and investors was justified, despite the general impression that COVID-19 enhanced Norwegian ASA’s financial challenges. Entering 2020, the Norwegian airline Norwegian ASA had recently started its turnaround from growth to profitability. Despite considerable amounts of debt accrued in previous years, the strategic shift led to an improvement in key financial ratios in 2019. This improvement was however short-lived. By the time the World’s health organization declared COVID-19 a global pandemic, its short-term effects had already begun to unfold. Social restrictions and quarantine regulations affected peoples’ travel habits and put an abrupt stop to international mobility. In the blink of an eye, Norwegian ASA went from working towards profitability to being critically dependent on governmental support to survive. Since the outbreak, the company has frequently issued new shares to raise additional capital to continue at going concern. By using publicly accessible data, this thesis provides a valuation of Norwegian ASA’s equity as of 15.04.2021. By forecasting financial statements and using the present value approach to valuation, we arrive at a market value of 9.42 billion NOK. Conducting a relative valuation did not change this value estimate. We also conducted a second valuation of the company before COVID-19 to isolate the effects of the pandemic. The resulting market value was 1.82 billion NOK. Despite enhanced competition within the airline industry from the threat of new entrants and external regulations, Norwegian ASA’s market value improved. Supported by an asset-based approach to valuation, the company was wise to continue operations throughout COVID-19. Our findings show that support from the government and investors was justified.