Friday 23 March 2018

Jewellery firm Pandora can be lucky charm as revenue soars

Pandora has been incredibly successful, recording revenue of 1.7bn Danish Krone (DKK) in 2007, which has now increased to over 23bn DKK.
Pandora has been incredibly successful, recording revenue of 1.7bn Danish Krone (DKK) in 2007, which has now increased to over 23bn DKK.

David Holohan

From very humble beginnings in 1982, Pandora has morphed into one of the fastest-growing jewellery companies in the world. The founders began importing jewellery from Thailand and selling through a wholesale venture. The Eureka moment came in 2000 with the 'Signature bracelet' and from that point, growth rates accelerated significantly - as did the global reach of the business.

Spotting a gap in the global jewellery market, management carved out a niche business in manufacturing charms for bracelets, allowing customers to continually update their collections.

Unlike other jewellery companies that sell items that cannot be altered or meaningfully personalised, Pandora cleverly differentiated themselves and expanded the market.

Pandora has been incredibly successful, recording revenue of 1.7bn Danish Krone (DKK) in 2007, which has now increased to over 23bn DKK. Growth in profitability followed the surge in revenue and the company continues to boast industry leading profit margins. The significant increase in revenue is even more impressive given that the company has remained steadfast in its support of the charms segment, which still makes up just under 60pc of total sales.

Pandora also finds itself in the enviable position of having strong brand awareness, being the third most well-known jewellery brand in the world. However, even more importantly, the company ranks very strongly with the increasingly important millennial generation.

The company has over 12 million Facebook followers, an app that has been downloaded more than 5.5 million times and in 2016, there were over 142m visits to the Pandora website. To put it mildly, management have succeeded at building a very strong social media and internet presence, which is an area that some peers are only now starting to make inroads towards.

Geographically, Pandora has meaningful exposure to several developed economies regions. The US makes up just over a third of company revenue - only surpassed by Europe and the Middle East. Unlike many companies, Pandora is only now entering the Chinese market in a big way and this is proving to be a very big success. It also provides a further growth avenue for management to focus resources on as the US market continues to cool.

Longer term, the global jewellery market is predicted by Euromonitor to increase by 6pc per year over the next several years, growing from €309bn in 2017 to €390bn by 2021.

Given that the Chinese market is the largest jewellery market in the world, Pandora looks set to enjoy continued rapid growth from its growing presence in the country.

As one might expect, the share price of Pandora experienced remarkably strong performance between 2011 and 2016. However, the share price has been trending lower, declining by 25pc so far in 2017. The recent weakness is driven by concerns that the company's largest single market, the US, is going to experience slowing growth in the future. While this is true, the shares now appear to fully reflect these near-term challenges.

Pandora shares also offer a very attractive dividend yield of over 5.5pc. This appears to be a very attractive juncture for a company that continues to grow earnings by a mid-teen percentage annually, while rewarding shareholders with a strong a sustainable dividend yield coupled with opportunistic share buybacks.

David Holohan is chief investment officer with Merrion Capital

Any investment advice in this column is from the author directly and should not be seen as a recommendation from the Sunday Independent

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