Valuation of Pandora

Morten Bøttger

Student thesis: Master thesis


The purpose of this master thesis is to come with a qualified estimate of Pandora’s share price, and thus conclude if it should be considered over or undervalued and how different methods of estimating volatility will affect that outcome. The strategic analysis found that Pandora could increase revenue by entering new markets and thereby diminish their dependence on existing markets. It also shows that Pandora is currently vulnerable with regards to production, as the only have one production facility. However there are some possible macroeconomic difficulties that could impact Pandora in a negative way. The Chinese economic voices some concern, as it has the possibility to affect the global economy, which would affect Pandora’s future earnings. Furthermore a British yes for the upcoming Brexit referendum would affect Pandora’s largest European market in a negative manner, although a British exit from the EU is currently considered improbable. The accounting analysis concluded that Pandora historically have had a high return on invested capital and high profit margins. Nothing that suggests that this would come to a halt in the near future The valuation of the share price was found with the FCFF model, a discounted cash flow model, and resulted in fair values of the Pandora share of 1.397 DKK, 1.701 DKK and 1.992 DKK depending on methods of estimating volatility. The methods used were simple regression analysis, exponentially moving average and GARCH model. This master thesis shows that when valuing a share price there is a large difference in fair value when using a simple model versus a more complex one when estimating volatility. Compared with analyst target prices only the estimate when using the GARCH model was within professional estimates. The results suggest that Pandora is currently undervalued, as the trading price of May 27th 2016 was 994 DKK.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages77