Equity valuation

: Atlas Copco AB

Abstract

This Dissertation presents a literature review of some of the most appraised theories on equity valuation models. A thoughtful analysis is made, presenting the main advantages and restrictions of each model and setting the path for a discussion about improvements to be made on this field of study. A practical implementation follows, proposing a fair value estimation of Atlas Copco AB shares. Atlas Copco is a Swedish-based capital goods company, operating across four different segments: Compressor Technique, Industrial Technique, Mining and Rock Excavation Technique and Construction Technique. The models initially used are the Discounted Cash Flow model, the Relative Valuation model and the Economic Profit model. The Relative Valuation model proves incapable of capturing Atlas Copco’s high invested capital profitability therefore not integrating the final value estimation. The Discounted Cash Flow and Economic Profit models point to a valuation of between SEK 267 and SEK 276 per share. Finally, an interesting comparison is made with an analogous Investment Research Report, produced by Credit Suisse. Highlighting the major differences in valuation assumptions and methodology, the reader is shown how an equity valuation exercise can be subject to different approaches and yield dissimilar results.

Date of Award	19 May 2016
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Carlos Tudela Martins (Supervisor)