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Master Thesis – Valuation of Pandora: Fair Price Estimation Based on Strategic and Financial Analysis


The principal objective of this master thesis is to estimate the fair price of one Pandora share as of 31 December 2011 on a stand-alone basis. Valuation is conducted through strategic and financial assessment.

Investors were excited to participate in the Denmark’s largest initial public offering in sixteen years and in a less than a year were “shocked” to find a sudden change in revenue and profit trend. The reaction was extraordinary – share price lost two thirds in just one day. This master thesis tries to estimate whether market priced Pandora’s stock objectively or it was just a temporary overreaction.

Pandora became the third largest world jewelry company in a relatively short period. Company is atypical among largest jewelry players to operate without retail operations and focus on manufacturing. Pandora stands out to be a rare player to get such a wide acknowledgment by affordable jewelry consumers. Exceptional product charm is the primary value driver and the largest danger.

Strategic analysis shows that Pandora overcomes external environment and jewelry industry challenges with unique resources: successful product charm, state-of-the-art production facilities, inexpensive production team in Thailand, in-house designers from Denmark, revolving credit facility, highly valued brand; and core competences: extensive manufacturing experience, abilities to scale the craftsmanship, abilities to enter new markets, strong financial consolidation and control functions and win-win retail proposal.

Financial analysis reveals that Pandora reached the point when customers are not ready to pay for affordable jewelry more and should lower current prices to keep the volume stable. New markets and particularly emerging countries should remain being the most important contributors to growth, but there is a threat that the company will not be able to stabilize the revenues from mature markets. Pandora has superior profitability comparing with peers, but not sustainable in the long-term. Pandora’s ROIC is considerably higher than peers’, but has been gradually decreasing and approaching the industry average.

The fair price of 132 DKK per one share on 31 December 2011 is estimated with probability weighted scenario discounted cash flow value driver model. Valuation is also examined with alternative discounted cash flow models (economic profit, NOPLAT convergence, exit multiple, FCF perpetuity) and peer multiples. The outcome is tested with sensitivity analysis. Different scenarios are modeled to determine pessimistic (40 DKK) and optimistic (302 DKK) values.

The fair price is 144% higher than the market price of 54 DKK/share on 31 December 2011. The recommendation depends on the investment horizon. Investors are recommended to buy shares with long-term investment horizon and should hold shares or be aware of high volatilities in the short (from one to two years) period.
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