Valuation of the Blue Lagoon. Valuing Iceland’s greatest tourist attraction during a global crisis

• Main Author: Guðný Halldórsdóttir 1991-
• Other Authors: Háskóli Íslands
• Format: Thesis
• Language: English
• Published: 2020
• Subjects: Hagfræði; Blue Lagoon; Iceland
• Online Access: http://hdl.handle.net/1946/35278

The Blue Lagoon has experienced tremendous growth in recent years as Iceland’s most iconic tourist destination. However, the company now faces unprecedented challenges as the COVID-19 coronavirus has all but shut down tourism worldwide for the time being. This thesis attempts to value the Blue Lagoon based on different valuation methodologies used in theory and practice: Discounted Cash Flow analysis, trading and transaction multiples, and Leveraged Buyout analysis. At this moment, it is impossible to predict the depth and duration of the COVID-19 crisis but it will clearly have a big impact on the Blue Lagoon’s performance in 2020 and beyond, as it might take years for the company to recover to previous levels. This certainly affects the Blue Lagoon’s valuation as it is closely tied to the company’s financial performance. Nonetheless, the Blue Lagoon is still a valuable company poised to rebound as Iceland’s tourism sector recovers from the crisis. Despite the COVID-19 crisis, we estimate the Blue Lagoon to be worth €325 to €375 million given certain assumptions on the length and depth of the crisis. For example, we predict the number of tourists to visit Iceland to remain below 2019 levels until 2024. We also predict the Blue Lagoon’s revenue per visitor to decrease by 20-25% in 2020 due to significant drop in demand. While still valuable, we argue that the Blue Lagoon would have been worth €500 to €700 million based on these same valuation methodologies if it had not been for the COVID-19 crisis. This means that the crisis has eroded €175 - €325 million of value for the Blue Lagoon’s shareholders.