Pandora (PNDORA; Baa2, BBB; S) Roadshow

€500m 6Y SLB Mandate, FV MS+100 vs IPT +145a, coming in line.

As flagged last week, retailer curves screen cheap here - H&M & Pandora trade the tight end of the space but that still leaves them in-line with equal-rated Tobacco. We see PVH29s (Baa3/BBB- Double-Pos) at Z+133 as most attractive (issued at +145) but advise those on side-lines to wait out (rough) earnings (4th June). Pandora is attractive vs. peers in the sector on fundamentals; higher growth & much higher margins balanced by somewhat smaller scale, single brand reliance & low penetration in large EM jewellery markets (China <0.5% market share, India 0%)

• Pandora is a ~€4b in sales jewellery retailer that says it aims to be largest brand in the "accessible luxury market" - not to be confused with Kering/Gucci "aspiration luxury" exposure (in the middle of the two). Latter has suffered recently (see Kering notes) while former should be more resilient through downturns & benefit from consumers trading down.
• Re. exposure it is Asia & China light; 50% Europe 34% NA & 8% Latin America are largest 3 regions. It is targeting growth into India, Japan & Korea (20% of global Jewellery market). See Q1 notes for country exposure but US heavy is takeaway.
• Fundamentals are strong; 25% EBIT margin, cash conversion on that at 78% with organic growth recently in HSD & expected to continue there. For comparison fellow Scandi co, H&M (NR/BBB) - which 28s trade in-line with - runs MSD operating margin with strong cash conversion but flat to LSD growth. Pandora is targeting 25% EBIT margin this year (reporting same as CY) & 26-27% by 2026.
• On ratings; very stable. S&P and Moody's assumptions look below consensus on headline revenue (they see MSD to HSD growth over next 2 years vs. consensus at ~10% avg.) & S&P's explicit EBTIDA target of DKK9.8b is about 5% below consensus. FCF assumptions from both look similarly conservative and are not that relevant given size of equity pay-outs/BS squared away.
• On BS: 1.3x levered in Q1 on net debt at DKK12.6b (€1.4b) including DKK4b (€560m) in lease liabilities & DKK900m (€120m) in cash. Liquidity isn't a issue on access to revolvers, target leverage is 1.2x to end this year & has a ceiling of 1.5x. Little net supply on this deal; €500m (DKK 3.7b) in proceeds to pay down DKK2b (~€270m) loan due next year. It issued its first bond (a 5Y/28 €500m) last year for similar loan paydowns. That line will be the only debt (outside leases) left on the balance sheet.
• Step-ups (on redemption price): This is a SLB line and it's tied to 2 performance targets 1) to reduce scope 1,2 & 3 emissions by 36% (vs. 2019 levels) by 2028 - it had got to 27% in FY23 - triggers redemption price step up of 60bps and 2) at least 44% women in leadership by 2028 (was at 34% in FY23) with redemption price step up of 40bps. Step ups/triggers can occur on each individually.
• Some Asides: On ESG it's showcasing some strong ratings and in '23 it switched to using only recycled silver and gold in production. It has exposure to commodities; it says 10% silver/gold price increase impacts operating margin by 0.7%. Manufacturing facilities concentrated in EM countries, Thailand and Vietnam.

1Q Results; https://marketnews.com/pandora-pandora2-28s-baa2-b...