Pandora braces for showdown with owners after market meltdown

[COPENHAGEN] Pandora is preparing to face shareholders in person just days after a disappointing set of results wiped more than a tenth off the Danish jewelry maker's market value.

Chief executive officer Anders Colding Friis and the departing head of finance, Peter Vekslund, are due to host Pandora's capital markets day in Copenhagen on Tuesday. It will be the first such event since 2016. Back then, an investor day in Bangkok followed strong Christmas sales and a 73 per cent share-price gain the previous year.

This time, shareholders will be asking management to explain a development that resulted in a 27 per cent share-price decline in 2017, and steep losses in early 2018. Management said on Thursday it didn't quite live up to its targets for last year and signalled profit growth will be more modest through 2022. The only investors to profit last week were the hedge funds that bet against Pandora, after consistently ignoring its assurances.

Reversal of Fate

Pandora used to be a stock-market darling, always exceeding its guidance. Its shares jumped 17-fold in the five years through 2016 as management beat market expectations quarter after quarter and revenue and net income both tripled.

But as the company has grown, Mr Friis has tried to make the point that a bigger base means slower growth. That message is proving hard to get across.

"Pandora has been under siege the past year by foreign hedge funds who are skeptical about its economic future," Per Hansen, an investment economist at Nordnet, said in a note on Tuesday. "It's now a question of delivering as convincing a presentation as possible, so that the hedge funds find nothing to chase and move on."

Mr Hansen says criticism that Pandora has faced "for being somewhat closed and not humble enough" was justified.

"It's a question of managing expectations," he said. "Pandora hasn't been particularly good at that the past year. Maybe today will provide a new beginning."

Cashing In

Some hedge funds have recently cashed in on profits. Lone Pine Capital and Coatue Management both reduced their short bets after Thursday's selloff. But other funds have joined the speculation against Pandora. BlackRock Investment Management placed its first official short bet last week.

Indus Capital Partners also created a short position, according to a regulatory filing late on Friday. (The regulator only discloses changes in positions for funds that short at least 0.5 per cent of a company.)

Mr Hansen says hedge funds shorting Pandora "will presumably remain a large uncertainty factor." According to data from IHS Markit, about 12 per cent of Pandora's stock is being shorted, down from a 12.8 per cent peak in November. But a year ago, short interest was only at about one per cent.

Pandora analysts remained mostly positive on the stock throughout 2017. But after last week's announcement, several banks cut their earnings estimates and targets. At least one, SEB, lowered its recommendation.

According to analyst data compiled by Bloomberg, there are still 15 buys, 3 holds and just one sell recommendation on Pandora. The average price target indicates a return of more than 40 per cent in 2018.

Pandora's management will try to convince analysts who turn up on Tuesday that the company is still a worthwhile investment.

"Pandora will have to open up and show what's in the box, but investors also have to dare to believe that growth and profitability will develop the way that Pandora forecasts," Nordnet's Hansen said.

BLOOMBERG