Fundamental Analysis and Valuation of Frontline PLC

Abstract

This thesis aims to find the intrinsic value of Frontline PLC through a fundamental analysis and the use of various valuation methods. The analysis includes an extensive strategic examination of internal and external factors influencing their operations. Subsequently, the financial statements of Frontline were analysed, and key figures were compared to an industry benchmark. In our analysis, we find that the outlook for the oil tanker market is positive, with a growing demand for oil globally and a contracting fleet Indicating higher freight rates in the future. Frontline is set to grasp this opportunity with both competitive edges in their governance and fleet, and strong financials compared to their peers.

Freight rates are extremely volatile and hard to predict, so the longer into the future we try to forecast, there will be a higher chance of significant errors. Therefore, we chose a forecasting period of three years, where we thought that we could estimate freight rates with more confidence. Freight rates are forecasted to increase for all oil tanker segments and to reach its peak in 2026. The forecasts were implemented in our primary valuation method, which was the discounted cash flow model. We also used both asset-based and relative valuation to support its findings, as well as a Monte Carlo simulation of freight rates implemented into our DCF-model. The relative valuation shows that Frontline have historically been, and are currently, trading at a premium to both their net asset value and their peers, which we expect will continue.

Conclusively, Frontline seems to be trading close to its intrinsic value at 25,70 USD with a market price of 23,92 USD on the 1st of April 2024 but is slightly undervalued.