An analysis and valuation of the Eltek Group
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The purpose of this paper is to provide the reader with a theoretical value of the Eltek Group, based on a strategic – and a financial analysis. The outline of the paper is mainly built upon the valuation framework developed by Penman (2010), and the valuation process is based on the valuation guidelines provided by Copeland, Murrin, et al. (1994). The data of the paper is restricted to publicly available information as the Eltek Group is a listed company. Therefore, numerous assumptions have been made in order to estimate the value per share. I believe these assumptions are realistic and that the computed value is the best current estimate. The paper is divided into 4 main chapters; Company description, Theoretical investigation, Methodical approach and Analytical investigation. In the first part of the paper I describe the Eltek Group; the history, the business segments and the markets. I then examine the relevant valuation literature and different approaches to a company valuation in chapter 2. In chapter 3 the methodology of the analytical part of the paper is described. The most important part of the paper is chapter 4; the analytical investigation of Eltek. I start with a thorough financial analysis of Eltek and the two main business segments. In order to provide an accurate picture of the financial health of the company, the financial statements are adjusted prior to the profitability analysis. The Net Operating Profit Less Tax (NOPLAT) and the key value drivers behind the performance of Eltek is then identified and evaluated. Chapter 4.4 constitutes the forecasting part of the paper. By investigating the historical financial statements and the correlations between the value drivers, an explicit forecast of 6 years is presented. The continuing value covers the period after the explicit forecast period. This value is discounted by the Value Driver Formula. Combined with the discounted value of the explicit forecasted Free Cash Flows, the value per share estimate is computed by applying the Discounted Free Cash Flow (DFCF) method. The resulting estimated share price is NOK 2.710. I conclude that the Eltek Group is slightly undervalued the 5th of June 2010, but that the underlying company value is principally reflected in the share price. All numbers in the tables of this paper are listed in millions, unless stated otherwise. A list of the abbreviations used in the paper is included in Appendix A.
Masteroppgave i økonomi og administrasjon - Universitetet i Agder 2010