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									       GLITNIR RESEARCH
              March 2007




     VALUATION

HF. Eimskipafélag
          Íslands
                                                                                                      HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                             March 2007

Summary
                      Valuation and recommendation                                                          Share price on OMX Iceland
Valuation share price                                               40,5
Valuation                                                       ISK70.9bn
Valuation range (+/-10%)                                       36,5 – 44,6
Advice                                                              Hold
6-month target price:                                               41,0
Price per share                                                     37,4
Outstanding shares                                          1,750.1 m shares
Market value                                                    ISK65.9bn



Highlights
  •     The result of the valuation of HF. Eimskipafélag Íslands is ISK70.8bn, which gives a price per share of 40.5.
  •     The 6-month target price is ISK41.0 per share, which is our forecast of the company’s share price in six months’ time.
  •     We recommend that investors hold their shares in the company.
  •     We expect the company’s operations to improve substantially in coming years.
  •     The valuation requires 13.1% return on equity.
  •     An average investment in fixed assets of 2.6% as a ratio of operating income is expected.
  •     Investors’ attention is drawn to the sensitivity analyses regarding changes in the principal assumptions for this valuation.




                                                                                           Glitnir Research
                                                                                           01.03.07




                                                                                           Authors: Arnar Freyr Ólafsson 440 4630
Glitnir owned an insignificant share in HF. Eimskipafélag Íslands when the valuation
was issued. All views and analyses are those of Glitnir Research at the time of writing,   Editor: Ingólfur Bender 440 4635
and can be changed at any time without notice. Glitnir hf. and its staff are not
                                                                                           greining@glitnir.is
responsibility for transactions based on the information and opinions here put forth.
Glitnir may at any time have interests at stake in individual companies, as an investor,
creditor or service provider; views and analyses are, however, prepared independently
                                                                                           Assumptions and conclusions                                    3
by Glitnir Research and based on public information on the company concerned. Glitnir
Research's valuation reports are prepared for institutional investors and experts for      Groups area of operations                                      4
investment in the financial market. Other customers are reminded that trading in           Assumptions for valuation                                      5
securities can be especially risky and they are advised to seek further advice from        Sensitivity to changes in principal assumptions                6
outside experts in making investment decisions, for instance, on investment options,
                                                                                           Principal assumptions for the valuation                        6
taxation and other factors concerning their investments.




                                                                                                                                                     2
                                                                                    HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                                 March 2007


Assumptions and conclusions
                                                                        1. mynd:        Sales and profit in 2006
Glitnir Research has not issued a valuation of HF. Eimskipafélag
Íslands since the company was listed on the stock market last year,            m .USD               Sales            Pret ax p ro f it           m .USD
making this our initial valuation of the company. HF. Eimskipafélag          400                                                                      10
                                                                             350                                                                      0
Íslands has recently published its annual results of, in many ways,
                                                                             300                                                                      -10
an unsuccessful year. Accordingly, a business model constructed in           250
                                                                                                                                                      -20
the first half of the year was abandoned. The fiscal year of HF.             200
                                                                                                                                                      -30
Eimskipafélag Íslands is from 1 November to 31 October. The                  150
                                                                             100                                                                      -40
company currently focuses mainly on three profit centres: The                 50                                                                      -50
operation of cold storages, see transport and related activities and           0                                                                      -60
flight operations. In coming quarters, emphasis will be placed on                        1F 06       2F 06         3F 06                 4F 06
restructuring and integrating the operations of profit centres. We
expect substantial improvement in all of the company’s profit
centres in coming years. The company defines its core operations as
                                                                        This year, we expect the group’s revenues to increase from quarter
investment activities which means that underlying assets can be
                                                                        to quarter. The first quarter of the fiscal year is usually the least
expected to be up for sale when the restructuring of operations is
                                                                        profitable due to contraction in sea and land transport. Revenues
completed.
                                                                        increase almost continuously between quarters, with activities
                                                                        reaching a peak in Q4 of the fiscal year. We expect a minor loss
The result of the valuation of HF. Eimskipafélag Íslands is
                                                                        from the company’s operations in Q1 of the fiscal year due to an
ISK70.9bn, which gives a price per share of 40.5. In light of the
                                                                        increase in temporary financial costs. Financial cost will increase
valuation, we recommend that investors hold their shares in HF
                                                                        substantially this year due to the fact that Atlas Cold Storage was
Eimskipafélag Íslands. The company’s 6-month target price is 41.0,
                                                                        purchased after the last fiscal year ended and we expect the
the price we believe that shares in the company will fetch in six
                                                                        company's assets to be sold before the end of the fiscal year 2007.
months' time. Investors’ attention is drawn to the sensitivity
                                                                        We assume that operations will improve as the year unfolds due to
analyses regarding changes in the principal assumptions for this
                                                                        an increase in revenues and profit margin.
valuation on page 7.
                                                                        2. mynd:        Expected sale and results in 2007
Methodology
Cash-flow analysis is used to calculate free cash-flow to equity. The                               Sales          Tot al prof it
                                                                               m .EUR                                                            m .EUR
main figures on the income statement are estimated ten years ahead           380                                                                          8
and the same applies to necessary capital expentitures. HF.
                                                                                                                                                          6
Eimskipafélag Íslands publishes its results in euros which is the            360

company’s working currency and the cash-flow is estimated in                                                                                              4
                                                                             340
euros. However, the company’s shares are in ISK and changes in                                                                                            2
the currency pair ISK/EUR therefore affect the company’s price per           320
                                                                                                                                                          0
share. The exchange rate 88.0 ISK/EUR is used as a basis.
                                                                             300                                                                          -2
                                                                                        1F 07 S      2F 07 S       3F 07 S               4F 07 S
Poor result in Q4
Last year, HF. Eimskipafélag Íslands made a profit USD79.3m. The
year’s revenues were about USD1.040m and the EBITDA about               We expect significant additional cost due to the restructuring of
USD135m if profit on the sale of Avion Aircraft Trading (AAT) is        acquired business units in the first half of the year, the results of
included. Results in Q4 are market by gains on the sale of ATT and      which will most likely surface in the last two quarters of the year. In
the company’s Charter & Leisure unit. If the trading profit is not      the year 2008, fluctuations in results are likely to level out between
included in the year's outcome, the company's loss amounted to          quarters, although we reckon that the usual seasonal fluctuations in
USD67.5m. Results in Q4 were very slack with losses from core           the company's operations will remain existent, i.e. similar to what
operations amounting to about USD16.3m. The quarter can be said         we expect in 2007.
to have marked the end of the original business model as the
Charter & Leisure activities were sold to key employees and
increased emphasis was placed on the operations of Eimskip. A new
period can therefore be said to have started and that results will be
more stable between quarters in coming years. A more stable
outcome is achieved through changes in the income composition of
Air Atlanta, the advent of Atlas Cold Storage, expansion in sea
transport and cold storages in Mainland Europe and in Britain.




                                                                                                                                                               3
                                                                                     HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                  March 2007

Group’s area of operations                                               activities are conducted by participating in tender offers or by sales
                                                                         staff bidding directly for business with potential customers.
                                                                         Therefore, the results of increased cross-sales can be expected to
Following mergers last year, the company’s core operations have
                                                                         take time, but we expect results to surface in coming years.
been strengthened significantly. Transport routes on sea have been
expanded and are now dense from St. Petersburg to Rotterdam.
Furthermore, there is dense network of routes to Iceland, Denmark        Land transport
and Britain to the east coast of the Unites States. The company also     Moreover, Eimskip’s areas of operations contain the company's
transports goods to and from the west coast of America to Asia,          dense network of land transport where its own vehicles are used, but
serviced by a third party. In our opinion, the transport network         deals have also been made with third parties. Land transport outside
forms the backbone of the group’s operations. The sea transport          Iceland is support activity to Eimskip’s cold storages and sea
network has been strengthened substantially and presents significant     transport because transport to and from cold storages from the
growth potential due to the expansion. The aircraft fleet of Air         producer or to the company’s ships are an integral part of the
Atlanta has been simplified, and the focus will be directed at results   company’s operations.
rather than business activity in coming years. The companies cold
storages are newly purchased and it will be interesting to see           Cold storages
whether results will improve under Eimskip’s new management.             Eimskip’s cold storages are almost a net addition to the company’s
                                                                         operations and the lion’s share of the operations is in the US.
3. mynd:     Expected division of operating income 2007
                                                                         Eimskip owns 25 cold storages in Britain, 6 in mainland Europe and
                                                                         56 in the US and Canada. The operations of the cold storages are
                          21%                                            defined as the operation of storages for goods for human
                                                                         consumption. The location of the storages aims to service a certain
                                              A viatio n Services
                                                                         group of customers such as meat producers and supermarkets.
                                              A tlas
    54%                                                                  Sea transport
                                              Shipping and               The company’s sea transport is as yet the company's most important
                            25%               Lo gistics
                                                                         activity. In sea transport, Eimskip's old transport routes are pulling
                                                                         the wagon and the addition of Containership and Kursiu Linja is
                                                                         intended as future source for growth in sea transport.
                                                                         In recent years, sea transport to and from the Baltic countries and
Air Atlanta
                                                                         St. Petersburg have grown significantly and it is foreseeable that
Air Atlanta has made important changes for the better in the
                                                                         this growth will continue for the next 5-10 years. The Baltic
company’s operations and simplified the aircraft fleet. Operations
                                                                         countries have jointed the European Union and foreign trade will
are based on air charter services, ACMO (Aircraft, Crew,
                                                                         therefore increase substantially. Eimskip is well prepared to receive
Maintenance & Insurance). The charter market is highly volatile
                                                                         increased activity from East Europe to West Europe as the network
and opportunities can arise suddenly. The company’s management
                                                                         is already in full use. It is not believed that more ships need to be
therefore needs to spot opportunities quickly and react as soon as
                                                                         chartered, but the ships now in use need to be exchanged for larger
they arise. Because of how volatile the market is, this entails that
                                                                         ships if demand increases in this part of the route system.
the risk level of operations is higher than, for example, in shipping.
The company has recently been updating its information systems so
                                                                         The operations of the group now more stable
that responsiveness has improved substantially and cost analysis of
                                                                         Underlying operations of the company have developed in such a
business opportunities is now much more efficient than before. In
                                                                         way that operations are now more stable since a large share of the
coming years, the aircraft producer Boeing expects passenger
                                                                         company’s revenues is in US dollars and not ISK. In coming years,
flights and freight to grow substantially in coming years. Before the
                                                                         we expect the weight of the euro to increase a great deal due to
large flight operators buy aircraft to tend to certain flight routes,
                                                                         increased activity in East Europe, as the acquisition of
they want to hire charter operators to check out the profitability of
                                                                         Containerships and Kursiu Linija have substantially strengthened
the route. The operations of Air Atlanta can therefore be expected to
                                                                         the company’s transport network. It was announced at the
yield good income growth and higher profit margin in coming years
                                                                         company's annual general meeting that the company’s results will in
as demand for the services of charter operators will most likely
                                                                         future be published in euros, which we think is only natural as the
increase.
                                                                         weight of the euro in the company's total revenue will increase in
                                                                         coming years. All things considered, a very important foundation
Eimskip
                                                                         has been laid for growth of the company’s route network which will
Eimskip’s business model can yield significant rationalisation for
                                                                         pay off in the next 3-5 years, but only to a small degree this year.
customers. Customers now need to deal with only one transport
company when, for example, transporting from central US to
mainland Europe, instead of up to four transport companies as when
conducting business the usual way at present. The importance of the
reliability of delivery times is the basis for the company’s business
model. Because of how recently Eimskip bought Atlas, potential for
cross-sales has only been utilised to a small degree. The company
can be expected to place increased emphasis on sharing the
companies’ sales staff in coming quarters. The company’s sales
                                                                                                                                             4
                                                                                       HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                       March 2007

Assumptions for the valuation                                            to new markets. Due to high external growth, the main focus can be
                                                                         expected to be directed at integration and rationalisation in
                                                                         operations. However, it should be duly noted that if the company is
Discount rate
                                                                         presented with an investment opportunity that conforms with the
The required rate of return on equity is 13.1%. The risk-free rate in
                                                                         company’s core operations, it is not unlikely that such an
the valuation is taken as the weighted average interest on 10-year
                                                                         opportunity would be seriously considered .
treasury bonds in the currencies that make up the company’s cash
flows.
                                                                         Air Atlanta will however most likely grown fast in coming years.
                                                                         Thus, the management aims to operate about 23 airplanes at year-
4. mynd:     Division of income 2006
                                                                         end 2007. According to the managements projections, the company
                                                                         aims to operate about 30 airplanes at year-end 2010. Due to the
                          3%
                     7%                                                  increase in the number of aircraft, the aim is to increase the turnover
                                                   USD                   to almost USD700m in 2010. Parallel to an increase in revenues, the
               11%
                                         37%       ISK                   aim is to increase the weight of freight transport to about 80% of the
                                                   GBP                   company’s total revenue in 2010.

             12%                                   EUR
                                                   Other                 5. mynd:        Development of operating income in the period
                                                   NOK                                                   Sales              yoy %ch.
                                                                              m .E U R
                                                                              3.000                                                       13%
                          29%
                                                                              2.500                                                       11%

                                                                              2.000                                                       9%

The weighted risk-free rate is 5.9% but recently rates have been               1.500                                                      7%
rising on both sides of the Atlantic. The market premium is 4.6%.              1.000                                                      5%
The company premium is 6.5% and a special small-cap premium of                  500                                                       3%
0.5% is also added. Further details of the methodology employed
                                                                                -                                                         1%
can be found in the report (in Icelandic) Ávöxtunarkrafa til íslenskra                 2007      2009      2011     2013      2015
hlutabréfa under www.glitnir.is/serefni.

1. tafla:    Nominal discount rate                                       Finances will fluctuate this year
                                                                         High indebtedness in relation to the acquisition of Atlas Cold
 1 Risk-free rate                                             5.9%
                                                                         Storage means that the company will hold significant debts in the
 2 Market premium                                             4.6%       current year until the sale of the frozen storages in Canada and the
 3 Leveraged beta                                             1.44       US: The company is presently preparing an auction where real
 4 Company premium (2*3)                                      6.6%       estate companies will be offered to buy the assets, but the buyer will
 5 Small-cap premium                                          0.5%       partly be owned by the group. The share in the real estate company
 Nominal discount rate (1+4+5)                               13.1%       that buys will be up to 49%. The plan is to complete the sale before
                                                                         the end of the fiscal year. Parallel to the acquisition of Atlas, the
                                                                         company issued a convertible bond which we expect to be about
Income growth                                                            8.4% of the equity issued by HF. Eimskipafélag Íslands. In the
Assumptions for the group’s income growth in the valuation are           valuation, the convertible bond is treated such that we assign about
such that average growth in the forecast period is 7.5% which can        8.4% of cash-flow to owners of the convertible bond. The bond can
be considered modest. In the first 5 years, income growth is much        be expected to be repaid following the sale of Atlas's properties, but
higher than in the latter half of the period. Accordingly, average       until then we define the bond as share capital. We reckon that
income growth as of the year 2007 and throughout 2011 is 9.7%.           revenue growth in coming years will not call for increased relative
From the year 2012 to the year 2016 average income growth is             indebtedness as Air Atlanta will charter the whole aircraft fleet, and
5.7% and future grown is 4%. In our opinion, assumptions for             Eimskip will also keep chartering some of its vessels along with
growth in the period are modest and we therefore point to                frozen storages. Eimskip charters those ships sailing the fastest
sensitivity analysis on the back page. It should be noted that the       growing routes and will exchange them for larger ships as needed.
model's sensitivity to income growth is greater than to other
measured assumptions. Expected income growth is very divided
very unequally within the group. Thus, expected income growth in
the company’s flight operations is about 9% in the forecast period,
5% at Atlas Cold Storage and 8% at Emskip’s sea and land
transport activities.

In coming quarters, the emphasis will most likely be placed on
improving the profit margin rather than income growth at the
company’s ship and cold storage division. In the past year, the
company has focused intensely on external growth to ensure access

                                                                                                                                                5
                                                                                       HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                         March 2007

Profit margin                                                             The division of the valuation
The profit margin of HF. Eimskipafélag Íslands will largely be            Due to a required rate of return/discount rate, the division of the
determined by how fast the management will cut costs and integrate        valuation is quite even. In the forecast period comes about 49% of
business units. At present, we believe that the company is at square      the company’s underlying value and the future value is 51%.
one, result wise, as a large part of the operations has not yet been
restructured and we expect considerable improvement in operations         7. mynd:     The division of the valuation
in coming years. The operations took their final form with the
acquisition of Atlas and Daalimpex and the restructuring and
                                                                                                         49%
integration can be expected to take 12-24 months. In the
abovementioned period, we believe that the profit margin will at a
low point this year but revive in coming years. However, relative                                                      C ash flo w, first 10 years
EBITDA margin will be higher this year than next year as the rent
                                                                                 51%
income from the frozen storages will fully be counted next year.
                                                                                                                       Term inal value
This year, the cold storages will be on the company's books,
resulting in high financing cost, but this cost will then partly be
transferred to rent next year.

6. mynd:         Forecast of EBITDA and EBITDA margin

      m .E U R           EB ITDA            EB ITDA -margin
     300,0                                                    12%

     250,0                                                    12%
                                                              11%
     200,0                                                    11%
     150,0                                                    10%

     100,0                                                    10%
                                                              9%
      50,0                                                    9%
       0,0                                                    8%
             2007      2009        2011   2013       2015




We expect profits before depreciation (EBITDA) to amount to
about EUR149m this year which equals a 9.3% EBITDA margin.
Next year, we forecast an EBITDA of EUR154m which equals
8.8% of operating revenue. We expect the EBITDA margin to show
a rising trend in the forecast period due to improved results in all of
the company’s business units.

Investment in operational assets
Investment in plant assets is expected to show a decreasing trend as
a ratio of income in the forecast period. Increased growth will not
entail an increase in investment as a ratio of income. Furthermore,
there are plans to continue chartering the company’s fleet of vessels
and the aircraft will be chartered in coming years, rather than
bought.




                                                                                                                                                     6
                                                                                                            HF. EIMSKIPAFÉLAG ÍSLANDS - VALUATION
                                                                                                                                                           March 2007




Sensitivity to changes in principal assumptions

8. mynd:         Sensitivity to changes in the nominal discount rate                            10. mynd:    Sensitivity to changes to the future growth in cash flows

      55                                                                                            55,0                                                   54,6

      50                                                                                            50,0                                       47,6

      45             44,1    42,2                                                                   45,0
                                        40,5                                                                                        40,5
                                                     38,9
      40                                                                 37,3                       40,0
                                                                                                                          33,4
      35                                                                                            35,0

      30                                                                                            30,0       26,3

      25                                                                                            25,0
                12,4%       12,8%       13,1%        13,4%               13,7%                               7,1%       7,3%        7,5%        7,7%       7,9%




9. mynd:         Sensitivity to changes in interest rates                                       11. mynd:    Sensitivity to changes in the average EBITDA margin

      55                                                                                            55

      50                                                                                            50
                                                                         46,9
                                                     43,3                                                                                                    44,2
      45                                                                                            45                                           42,3
                                        40,5                                                                             38,6         40,5
                             38,2                                                                   40
      40            36,3                                                                                      36,8

      35                                                                                            35

      30                                                                                            30

      25                                                                                            25
                2,0%        3,0%         4,0%            5,0%            6,0%                               9,5%       9,8%        10,0%       10,3%       10,5%




Principal assumptions for the valuation
(EUR million)                        2007        2008            2009            2010    2011       2012      2013       2014      2015       2016

Income from operations               1,607       1,759           1,971        2,185     2,329      2,475     2,625      2,777      2,938     3,077
  % change year on year                          9.5%           12.0%        10.9%      6.6%       6.3%      6.0%       5.8%       5.8%      4.7%
EBITDA                                149         154             193          220        235        251       268       285        303        319
 EBITDA % of revenue                 9.3%        8.8%            9.8%        10.1%      10.1%      10.2%     10.2%     10.3%      10.3%      10.4%
Depreciation                           -70         -46            -48             -50     -52        -54       -56        -58        -60       -62
EBIT                                    80        108             145             170    184         198       212       227        243        256
 % of sales                          4.9%        6.2%            7.4%            7.8%   7.9%        8.0%      8.1%      8.2%       8.3%       8.3%
Financial charges                      -62         -25            -28             -31     -34        -36       -38        -41        -43       -46
Tax                                     -1         -17            -23             -28     -30        -32       -35        -37        -40       -42
Net earnings                           16          66              94             111     120        129       139        149       160        168
 % of sales                          1.0%        3.8%            4.7%            5.1%   5.2%        5.2%      5.3%      5.4%       5.4%       5.5%


Key Ratios                          2007 S      2008 S
P/E                                   51.3        12.3
Return on equity (ROE)               2.7%       10.9%
EV/EBITDA                              9.5         9.2
P/B                                    1.4

Nominal discount rate               13.1%
Future growth                        4.0%




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