Valuation of PANDORA A/S: A Company with High Variance

Hashim Sultan Butt

Student thesis: Master thesis


The aim of this thesis study was to assess, whether PANDORA was over or undervalued in the stock market the 1st of June 2016 at S&P500. The motivation behind evaluating the above statement was due to high instabilities in PANDORAs observed stock price. To estimate the total value of equity and thereby assess a single stock price, have been done in accordance to analysing the non-financial value drivers (strategic analysis chapter 1) and the financial value drivers (financial analysis chapter 2). PANDORAs non-financial value drives revealed several important relations in the external and internal environment. In terms of production, PANDORA had previous experienced difficulties, as all of their production plants are located in Thailand. PANDORA gains from cheap labour, currency advantages and tax exemption in Thailand. Further it was identified, that PANDORA faces uncertainty with high associated risk, since the main revenue source is derived from one single product, namely Charms. Changes in fashion will outperform charm products and PANDORA does not have any second bestselling products. In contrast PADNORA has increased control of their value chain by switching to a vertical business model. By examining the financial value drivers, several key ratios were identified. On an overall level, PANDORA has shown strong and solid financial statement results through the previous years. This is also seen by an increase in profit margin and less operating expenses. Combing the achieved understanding in the financial and non-financial analysis, PANDORA was forecasted for five years. This was done in accordance to selected key ratios as revenue, asset turnover, profit margin and net operating asset. After the fifth year in the pro forma statement the growth in terminal period was kept constant, to represent the growth in perpetuity. By CAPM the return on equity was calculated to 8.35%, return to debt holders 1.38%, average book values of equity / debt responding to 62% / 38%, and resulted in 5.58% in weighted average cost of capital. The calculations were done in accordance to the Discounted Cash Flow model, as it uses WACC and yields the most user attribution among the listed models. The estimated valuation price 1st of June 2016 was DKK 1,079.13, whereas the observed market price was DKK 995.5. PANDORA stock was undervalued by DKK 79.63. The estimated stock value was very depending on the different elements in WACC, forecasting section and beta value. If those parameters were changed, another valuation of PANDORA will be recognized.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages97