Financial Evaluation of a Public Firm, Theory and Practice: Finnair
Bytyqi, Avdyl; Le, Kieu Anh (2018)
Hämeen ammattikorkeakoulu
2018
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2018092515409
https://urn.fi/URN:NBN:fi:amk-2018092515409
Tiivistelmä
This Bachelor Thesis aims to present a complete financial valuation of Finnair by utilizing the Discounted Cash Flows method and by analyzing Finnair’s business as well as its operating environment. In line with the aim of this study the authors will attempt to answer the following thesis question:
” What is the fair value for Finnair and how does it compare to the current market value?”.
Finnair is the national airline of Finland; its headquarters reside in Vantaa on the grounds of Helsinki Airport – its hub. Finnair’s focus lies in transporting passengers and cargo between Europe and Asian megacities thanks to its favorable geographical location, which provides the fastest routes between two continents. In line with this strategy, Finnair applies a typical full-service carrier (FSC) business model where the airline uses Helsinki Airport as the transferring point for its long-haul intercontinental flights.
2017 was particularly a good year for Finnair as the airline gained more than double profit and a 300% increase in share price comparing to the previous year. However, it is thoroughly explained in this thesis that Finnair operates in the aviation industry that is heavily influenced by external factors. The airline business is cyclical, and revenue fluctuates during the year, from political and economic upswing to downturn periods, from holiday to business seasons. Therefore, it is doubtful that Finnair’s business will be able to be striking at the same rate in the next five years.
The outcome of both internal and external analysis, as well as many forecasts concerning the aviation industry and the economy, are incorporated in the Discounted Cash Flows Valuation to determine a fair price for Finnair. This results in a calculated share price of € 9.48 (as of May 14, 2018), which suggests that Finnair’s share price is overvalued by € 1.99 or 20.96% compared to its actual share price of €11.47 (as of April 27, 2018).
” What is the fair value for Finnair and how does it compare to the current market value?”.
Finnair is the national airline of Finland; its headquarters reside in Vantaa on the grounds of Helsinki Airport – its hub. Finnair’s focus lies in transporting passengers and cargo between Europe and Asian megacities thanks to its favorable geographical location, which provides the fastest routes between two continents. In line with this strategy, Finnair applies a typical full-service carrier (FSC) business model where the airline uses Helsinki Airport as the transferring point for its long-haul intercontinental flights.
2017 was particularly a good year for Finnair as the airline gained more than double profit and a 300% increase in share price comparing to the previous year. However, it is thoroughly explained in this thesis that Finnair operates in the aviation industry that is heavily influenced by external factors. The airline business is cyclical, and revenue fluctuates during the year, from political and economic upswing to downturn periods, from holiday to business seasons. Therefore, it is doubtful that Finnair’s business will be able to be striking at the same rate in the next five years.
The outcome of both internal and external analysis, as well as many forecasts concerning the aviation industry and the economy, are incorporated in the Discounted Cash Flows Valuation to determine a fair price for Finnair. This results in a calculated share price of € 9.48 (as of May 14, 2018), which suggests that Finnair’s share price is overvalued by € 1.99 or 20.96% compared to its actual share price of €11.47 (as of April 27, 2018).