The ultimate deep value bargain

Pandora jewellery


When jewellery company Pandora A/S listed in 2010, investors scrambled for shares in the largest Danish IPO in 16 years. Pandora had enjoyed great success with its business model of selling a bracelet and separate charms, which its customers buy over time. The effect is that its customers end up spending far more money on charms to fill up the bracelet as compared to what they might spend in a typical one-off jewellery purchase. As a result, Pandora has enjoyed an impressive return on invested capital above 40% and dramatic growth in recent years.

In the face of commodity price increases the CEO announced that Pandora would meet its aggressive growth forecasts by hiking prices by 30%. As a result of this ill-conceived price increase, Pandora lost around two-thirds of its market value after it was forced to cut its full-year forecast when customers rejected the new prices. Pandora was priced by the market as if it would never recover from this debacle. However, we took the view that the company had a modest amount of debt and was likely to meet its revised downward forecast. We established a position at an entry price that represented 2x Pandora’s forward earnings. While cognizant of the various investment risks that include fashion risk inherent to the charm bracelet concept, increased competition and near term economic headwinds, we consider that these concerns were more than priced in at our low entry price. We foresaw dramatic upside from our entry price of 42.41 kr even if pandora’s sales dropped further. Pandora, at the time, was also yet to penetrate available growth markets such as Asia, where it lacked a meaningful presence.


We closed the position at around 1,000 kr for a gain of 2,300%


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