Pandora soars; CEO predicts turning point

Shares in Pandora recouped much of last week’s sudden loss as management spent the day trying to reassure investors that 2018 will mark a turning point in the troubled jewelry-maker’s prospects.

Chief Executive Officer Anders Colding Friis and the departing head of finance, Peter Vekslund, hosted Pan-

dora’s capital markets day in Copenhagen on Tuesday. It’s the first such event since 2016.

Friis is confronting shareholders who lived through a 27 percent stock-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 sig- naled profit growth will be more modest through 2022. The only investors to make money on last week’s bad news were the hedge funds that bet against Pandora. But on Tuesday, the CEO

tried to address investor con- cerns, and said Pandora will “expect to return quite a lot of cash to our shareholders” in 2018-2022. The stock opened higher and traded up as much as 6.4 percent, its biggest gain since November. Pandora used to be a

stock-market darling, consistently 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, 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 ques- tion of delivering as con- vincing a presentation as possible, so that the hedge funds find nothing to chase and move on.”

Hansen says criticism that Pandora has faced “for being somewhat closed and not humble enough” was justi- fied. “It’s a question of man

aging expectations,” he said. “Pandora hasn’t been particularly good at that the past year.”

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 discloses changes in positions only for funds that short at least 0.5 percent of a company.)

Hansen says hedge funds shorting Pandora “will presumably remain a large

uncertainty factor.” Aside from a challenging

U.S. retail market, Pandora

said a lack of product innovation has been problematic, according to its investor presentation on Tuesday.

Data from IHS Markit shows that about 12 percent of Pandora’s stock is still being shorted. That’s down from a 12.8 percent peak in November, but considerably higher than the roughly 1 percent short interest a year ago. Short traders bet that a stock will decline in value.

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.

Pandora said Tuesday it will provide guidance specifically for 2018 on Feb. 6. As in previous years, the company will add to shareholder returns by initiating a buyback of its own stock, it said.

According to analyst data compiled by Bloomberg, there are still 15 buys, three holds and just one sell recommendation on Pandora.

The average price target indicates a return of about 40 percent 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.