Equity Valuation of Pandora A/S

Claus Find Andersen

Student thesis: Master thesis


The purpose of this thesis is to challenge the stock price of Pandora A/S as of November 1st 2016, by estimating the fair value of the stock. This is done by using two different valuation methods wherein two different methods of calculating the continuing value has been used. This has resulted in four base results of the Pandora share. The value of a share was found within the range of [587.02;792.84]. In order to reach the final estimates, a strategic, financial and a quantitative industry analysis is conducted to get a better understanding of Pandora and the industry wherein Pandora operates. The two greatest threats/drivers identified in the strategic analysis was Pandora brand value and the future development of commodity prices. This knowledge was used to forecast the value drivers in the Residual Operating Income Model. Both valuation methods are based on the residual operating income model, but uses two different methods for the risk adjustment. Consequently, the two risk-adjustments is estimated and an estimation of the risk-free interest rate structure is done, as the risk- free interest rate has been used in both models, however in different ways. The Residual Operating Income (ReOI) model indicates a share price of 740.99 DKK and 792.84 DKK depending of the specification of the continuing value term. The General Equilibrium (GE) model for risk adjustments yields a price of 587.02 DKK and 602.22 DKK. To some degree, the models support the market value of 830.50 DKK, although the GE- based model indicates that the share is slightly overpriced. At the end, a sensitivity analysis is performed, to check the validity of the results, along with a multiple valuation. The sensitivity analysis showed that the ReOI valuation was particularly sensitive to the equity beta, however, this applies to all risk discounting valuation models. But as the estimation of this parameter for Pandora is highly influenced by length of the investigated time period, the analysis showed that the equity beta could be estimated in the range [1.02, 1.77]. Consequently, the validity of the ReOI results is very low and perhaps the fair value of Pandora is significantly higher, based on the forecasting (1.77 used). However, the GE valuations indicate an even lower value than ReOI models. Based on the estimated share prices for Pandora A/S and the sensitivity analysis; the market price of Pandora seems to a moderate degree to be supported by fundamentals.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2017
Number of pages107