A Famous Lagoon at a Full Price

The Blue Lagoon is selling shares to the public this week. The offering opened on Tuesday 10 November and closes on Friday at 16:00, the price is 95 krónur a share, and the story has been on the front page of the Financial Times.

I did what I ask my students to do before they form an opinion on a company. I read the prospectus, all three parts of it, and the investor presentation. Then I put the company through the review Charlie Munger used on every investment he looked at. Is this a wonderful business, who gets paid, how do I lose money, what is my own head doing to me, and what does the price leave for me. It is the same review I run on the listed companies I follow when I invest in mature companies.

I have come to think the Blue Lagoon is a good business with a famous asset, offered at a price that only works if everything in the plan goes right. The rest of this post is how I got there, so you can check the reasoning against your own.

What is for sale

The company is issuing 150 million new shares at 95 krónur, which raises ISK 14.25 billion, about €105 million. The money goes to the company and not to existing owners, and I count that as the best feature of the deal. Small subscriptions go into a book at the fixed price. Subscriptions above ISK 20 million go into an auction where 95 is the floor. Trading on Nasdaq Iceland is planned for 20 November.

You are not buying the lagoon alone. In July the company agreed to buy all of Arctic Adventures and pay with 246 million new Blue Lagoon shares, also valued at 95. The Competition Authority cleared it on 2 November. After both transactions there are about 1.27 billion shares, and at 95 the whole company is valued at roughly ISK 121 billion, or €887 million.

The investor presentation says this is 12.8 times EBITDA. That number uses the forecast for 2027, which is €72 million for the combined group. What the two companies have earned over the last twelve months is closer to €48 million. On that figure the multiple is about 19. Read those two numbers together and you see what is being sold: a 50% rise in earnings that has not happened yet.

Good is not the same as wonderful

Munger’s late view was that it is better to pay a fair price for a wonderful business than a low price for an ordinary one. So the first question is which of the two this is, and the case for wonderful is strong. There is one Blue Lagoon. In 2025 it took in 834,000 bathers, which the registration document puts at about 37% of all foreign visitors to Iceland, and each of them left roughly €84 at the lagoon before they had eaten or slept. The founder, Grímur Sæmundsen, still owns a quarter of the company and is not selling a share.

The test I use is simpler than brand. A wonderful business earns a high return on the money tied up in it, year after year, without needing much more money to grow. Here the numbers are ordinary. Operating profit in 2025 was €14.4 million on about €354 million of equity and debt, which is a return of 4%. In 2023, the last year before the eruptions, it was 8.5%. On the 2027 plan I get about 6%.

Growth also has to be bought. The Mountain Retreat in Þjórsárdalur will cost €139 million and is expected to earn something like €21 million of EBITDA four years after it opens. That is a fine hotel project. It is not a business that compounds on its own.

Then there is the moat. The brine that makes the lagoon blue comes from HS Orka’s power plant, under a contract that runs to the end of 2044. The Blue Lagoon paid HS Orka €701,000 for it in 2025. HS Orka also owns the Bláa Lónið trademark in some categories, and the land is leased. I would argue a moat that runs through someone else’s pipe is worth less than one you own, and the contract will be renegotiated by somebody who knows exactly what the water is worth.

Pricing power is about to be tested in public. The government plans to move bathing lagoons from the 11% VAT rate to 24%, the bill is before Alþingi, and the company’s 2027 forecast assumes it happens. If guests pay the difference, this is a stronger business than I think. If they do not, the company absorbs a cut of about 10% on every ticket.

Who gets paid

Munger said that if you understand the incentives you can usually predict the outcome. I went through the documents asking only who benefits from this listing and when.

Nobody is locked up. The securities note says in plain words that no selling restrictions apply to any shareholder after the offering. The owners of Arctic Adventures receive 19.4% of the combined company in shares that become tradable on the first day. Two of the larger sellers are private equity funds, and a fund’s job is to return cash to its investors. For them the listing is the exit.

The largest seller of Arctic Adventures is Stoðir, which also owns 4.3% of the Blue Lagoon, and its chief executive sits on the Blue Lagoon board. The prospectus says he did not take part in the decision and that an expert report was prepared as company law requires. I take that at face value. I still note that the seller was paid in shares valued at the same 95 krónur the public is being asked to pay, for a tour business priced at about 24 times its 2025 profit.

The people presenting the forecast are new. The chief executive started in March 2026 and two of the seven executives joined in August. That is not a criticism of them. It means the 2027 numbers come from a team that has not yet lived through a full year with this company.

And the timing suits the seller. The last eruption on the Sundhnúkur crater row ended on 5 August 2025. The listing comes fifteen quiet months later.

How I would lose money

Munger’s habit was to turn the question around. Instead of asking how the investment works, ask how it fails, and then see how many of those roads are open.

The first road is the one every Icelander already knows. Between December 2023 and August 2025 there were nine eruptions next to Svartsengi. In 2024 the company’s EBITDA fell to €9.6 million from €38.8 million the year before. The prospectus quotes the Met Office from 27 October: land is still rising at Svartsengi, magma is still collecting, and the most likely scenario is that this period ends with another magma intrusion and possibly an eruption.

What I did not know until I read the footnotes is that the company’s business interruption insurance does not cover a shutdown caused by a natural disaster. The buildings are insured. The lost revenue is not. The combined group carries about €238 million of interest-bearing debt and leases, roughly €134 million once the new cash is in, and every property it owns is pledged to the lenders.

The other roads are slower. The VAT increase lands and guests push back. The 2027 plan is missed, and the plan is demanding: to hit the middle of this year’s guidance the fourth quarter has to deliver about €8.7 million of EBITDA, against €2.8 million in the same quarter last year. Shareholders with no lock-up sell into a small market. The company keeps paying for acquisitions with new shares.

Only the first of these can take your money for good. The others take it for a while. That difference matters, because nobody can forecast the volcano, me included, and when a risk cannot be forecast the price has to pay you for carrying it.

What my own head is doing

This is the part of the review people skip, and in a week like this one it is the part that matters most.

I moved to Iceland in 2006 to work at Glitnir, and I remember what it feels like when everyone in Reykjavík agrees about an investment. Agreement is comfortable. It tells you nothing about the price.

So I wrote down what is pulling on me. Most of the large pension funds already own the shares. The window is four days long and the company says it will try to fill small subscriptions in full, which makes not subscribing feel like losing something. The company is a national symbol and I like it. The price is described as a floor, which makes 95 sound like the least it could be worth. One published valuation puts the shares at 137. The bankers’ comparison table sets 12.8 against 18.9 and includes Hilton, Marriott and Hyatt, which own almost no hotels and are a different kind of business.

None of these is a reason to buy or a reason not to. Munger’s warning was about the moments when several of them push the same way at once, because that is when careful people stop doing arithmetic. This week they all push the same way.

What 95 krónur buys

So I did the arithmetic. I built a ten-year cash flow model with four cases and my own assumptions, before looking at anyone else’s number.

If management delivers the 2027 plan in full, the VAT increase is passed on and there is no eruption, I get about 92 krónur a share. In my own base case, where the plan comes in a little short and I set aside a modest sum each year for eruption losses, I get about 62. If the plan misses and the eruptions return, 27. If the lagoon gets back to the 30% margins it earned before 2020, 114. Weighted by how likely I think each one is, the answer is about 64, and I would put fair value somewhere between 60 and 80.

These are estimates and nearly two thirds of each one sits in the years after 2036, so nobody should treat them as precise. What they tell me is the shape of the bet. At 95 the buyer pays for the plan as if it has already been delivered, and takes the volcano for free.

The model is here if you want to argue with it. It also holds a correction against myself. Aswath Damodaran would fault my version in two places. I used a 9% cost of capital, more than a point above what a textbook build gives, because I wanted to be paid for the volcano. And my terminal value lets the company grow for ever without reinvesting much, which no company can do. The first choice makes my number too low and the second makes it too high. Fix both his way and the weighted value moves from 64 to about 58. The switches are on the Inputs sheet.

One comparison stayed with me. On the 2027 plan I estimate a net profit of about €30 million, which on a market value of €887 million is an earnings yield of 3.4%. The company’s own presentation gives its weighted cost of debt as 5.7%. The banks, who are secured on every building, earn more than the owners are being offered, and the owners stand behind them in the queue.

Where I land

Munger sorted every idea into three trays: yes, no, and too hard. The volcano belongs in the third tray for everyone. The business belongs in the first. The price, for me, belongs in the second, and it is the price that is on offer this week.

I would change my mind for three things. A share price nearer 70, which the absence of lock-ups may well produce after listing. A fourth-quarter result that shows the plan is on track. And a year of evidence that guests pay the higher VAT without flinching.

I want to be fair to the other side. People I take seriously will subscribe on Friday, and some of them will be right, because a great asset can outrun a full price if you hold it long enough. The offering also does something good for Iceland. It puts a real operating company in front of ordinary savers, with 700 employees offered a share plan, on a stock market that needs more of both.

For founders there is a second reason to care. A prospectus is the most honest document a company ever writes about itself, because the law makes it so. In 234 pages the Blue Lagoon tells you what it earns on its capital, who it depends on, what it cannot insure and who is selling. If you are building a company in Iceland, read it as a picture of what the public market will one day ask of you. And if you are deciding whether to subscribe before Friday at 16:00, read the risk chapter before you read the presentation.

Sources and disclosure

• Bláa Lónið hf. prospectus dated 5 November 2026: summary, registration document and securities note
• Bláa Lónið investor presentation, November 2026, for the 2027 forecast, the peer table and the cost of debt
• Icelandic Met Office, status on the Reykjanes peninsula, as quoted in the prospectus on 27 October 2026
• mbl.is, valuation of 137 krónur a share, 10 November 2026
• The valuation range, the returns on capital and the trailing multiple are my own calculations from the figures in those documents

I have not subscribed to the offering, and neither I nor Founders Ventures or Blue Nova Ventures holds shares in Bláa Lónið or Arctic Adventures. I am an investor in Travelshift, which sells tours in the same market as Arctic Adventures. This post is my own analysis and my own opinion. It is not investment advice, and anyone considering the offering should read the prospectus in full.