Valuation of XXL ASA

This master thesis presents a comprehensive valuation analysis of XXL ASA, a prominent Norwegian retail company operating in the Nordic sports industry. A fundamental valuation method, in combination with a supplementary comparative valuation has been utilized to estimate the equity value of the company as of December 31, 2021. The valuation has been performed from an investor perspective, using only publicly available information. The purpose of this study is to provide a trading strategy: buy, hold, or sell, based on the estimated equity value and the corresponding stock price. Therefore, the research question addressed in this study is as follows: “What is the fair value of XXL ASA’s equity as of December 31, 2021?” To address this research question, a strategic analysis of internal and external factors has been conducted to map XXL’s strengths and weaknesses, as well as to identify opportunities and threats. Furthermore, a financial statement and credit risk analysis of historical data has been performed, which together with the strategic analysis forms the basis for future expectations for the industry and the projected financials for XXL. The analysis indicated that XXL in the short term is expected to face challenges due to macroeconomics conditions, high inventory levels, and increased competition. However, in the long term, the company is expected to reverse this trend, regaining profitability and growth. Based on the assumptions about the future and the projected financials, the value per share using a fundamental approach for XXL is estimated to be NOK 5.98. To test the uncertainty in the valuation estimate, a sensitivity analysis has been conducted to assess the robustness and reasonableness. In addition, the comparative valuation yielded a value per share of NOK 51.61 based on the average of multiples. For comparison, the market price of XXL on the Oslo Stock Exchange at the valuation date was NOK 14.03. In determining the final value estimate of XXL’s equity and the corresponding stock price, the comparative valuation has been excluded due to an excessively high valuation and its weaknesses. Therefore, only the fundamental valuation is taken into consideration in estimating the value per share to be NOK 5.98. This leads to the following conclusion: The XXL stock is overpriced, and we recommend selling the stock as of December 31, 2021