Jean-Pascal Rolandez of The L.T. Funds presented his investment thesis on Pandora (Denmark: PNDORA) at European Investing Summit 2022.

Thesis summary:

Pandora was founded in 1982 by Danish goldsmith Per Enevoldsen and his wife. Pandora started with a single store in Copenhagen by importing jewelry from Thailand. In 1989, Enevoldsen hired in-house designers and established a manufacturing site in Thailand, providing affordable, hand-finished jewelry for the mass market.

Pandora’s collection grew to include an assortment of rings, necklaces, earrings and watches. The idea of developing a charm bracelet concept that women could style in a personal way, became a reality in 2000, when the group launched its signature bracelet expanding quickly abroad.

In 2008, the Danish private equity group Axcel bought a 60% stake from the founders, listing the company in 2010. Since, Pandora has built the world largest affordable jewelry brand with a high level of brand awareness.

Pandora designs, makes, and markets hand-finished and contemporary jewelry from materials such as silver and gold, with 54% sourced from recycled metals. The group offers charms (51%), bracelets (20%), and rings (15%).

Charm bracelets are the signature products of Pandora, helping repeat purchases of charms. From the purchase of raw materials right through to sales, Pandora controls each step, allowing a high gross margin and pricing power. Pandora has the exclusive rights to reproduce charms based on Disney films until 2025. In 2021, Pandora announced a collaboration with Lucasfilm (Disney) to launch a collection of Star Wars inspired jewelry. Partnerships (10% of sales), also include Harry Potter (Comcast-NBCUniversal).

Pandora jewelry is sold in over 100 countries (Europe 48%, North America 30%, China 5% APAC ex-China 13%) through 6,800 points of sale, including more than 2,600 concept stores and online stores accounting for 26% of sales.

Pandora produces its jewelry at two facilities in Thailand is building a large one in Vietnam. Pandora is the world N°1 affordable jewelry player, with DKK 25.9 Bn 2022 (e) sales, 26,000 employees and 102 mn pieces of jewelry sold p.a.

The market tapped by Pandora is expected to grow by 4% annually by 2026 (source: Fortune business insights) driven by GDP growth. Positioned within the affordable jewelry segment with average €20-40 price range, Pandora competes with brands like Bijou Brigitte, Chamilia, Biagi, and Soufeel. Pandora is now seeking to boost lab-grown diamonds sales as part of a sustainability drive but also as a way to boost growth and lower production costs

Since 2010, the company has seen five CEOs. The task of the current management team, which started in 2017, is to reboot the relevance and reach of the Pandora brand, reduce costs in order to return Pandora to growth, as 2019 saw a 4% decline in sales and a 33% decrease in EBITDA. This includes significant long-term investments in Pandora’s digital presence. The commercial reset involves reducing promotional discounting days, decreasing inventories at wholesale partners and lowering the number of design variations by eliminating non performing products.

Under the new management team (2019), sales showed 3% CAGR despite Covid shutdowns, with EBITDA up 17% p.a., reflecting a better product mix management. Over the last five years, net debt increased by DKK 1Bn, resulting from DKK 26Bn of free cashflow, DKK 4Bn of franchisees’ acquisitions, DKK 10Bn related to share buybacks and DKK 10Bn to dividends. Its 2021 48% ROCE exceeds its 4.5% WACC.

Jean-Pascal expects a 7% EBITDA CAGR by 2026, with over DKK 25Bn of cumulated free cash flow (current FCF yield is at 15%), after capex of DKK 4.3Bn.

The shares recently traded at 4.7x 2022(e) EBITDA, 7.5x net earnings, and 1.3x sales. Parvus AM owns 5.4% and Blackrock owns 3.5% of the equity.

Listen to this session:

slide presentation audio recording

About the instructor:

Jean-Pascal Rolandez is the manager of The L.T. Funds, a Geneva-based investment firm focused on a buy and hold strategy based on a limited number of European stocks with a 5+ year investment horizon. Jean-Pascal has more than 25 years of equity investment experience and has founded the first investment club at the leading French business school ESSEC. Prior to establishing The L.T. Funds, Jean-Pascal held various executive positions at BNP Paribas for 22 years, including as Paribas’ French equity strategist.

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