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Pandora (Hold, TP: DKK200.00) - Very high coronavirus risk We believe coronavirus creates significant earnings risk for Pandora, as evident by China sales down c70–80% YOY and with other key countries now most likely set to follow as the virus spreads.

Pandora (PNDORA DC, Hold) - Very high coronavirus risk We believe coronavirus creates significant earnings risk for Pandora, as evident by China sales down c70–80% YOY and with other key countries now most likely set to follow as the virus spreads. Consequently, we have lowered our 2020e EBIT by c42% and cut our target price to DKK200 (340). We reiterate our HOLD as we find the risk/reward at current levels fair. China sales down significantly on coronavirus, other countries set to follow. On 16 March Pandora announced that LFL has been between -70% and -80% since late January in China, and that a return to normalcy will take time. At present, despite having a positive trend until February, Italy should be witnessing a similar trend with almost a complete halt in sales. On March 18 Pandora closed all its physical O&O stores in Italy, Spain, Germany and France among others, until further notice. Its physical stores in the US will also be closed for two weeks. Significant negative estimate revisions. We have cut our 2020e EBIT by c42% following the significant revenue losses due to coronavirus, the removal of Pandora’s financial guidance, and very soft consumer sentiment in general. Although the company still eyes profits in Q1 2020, we believe the outlook for Q2–Q3 is grim. Recession fears. The spread of coronavirus has triggered concerns that we are entering a recession. The fine global jewellery market has enjoyed strong structural growth over the past two decades with a c6% CAGR in 1999–2018. However, despite this, jewellery sales dropped c5% YOY during the financial crisis in 2009. We are concerned that the impact of coronavirus could have a larger impact, as seen in China, with a risk of discretionary retail trade shutting down completely for a period in markets severely hit by the virus. Valuation looks low, but earnings risk high on coronavirus uncertainty. At our revised target price of DKK200 (340), the stock would be trading at a P/E of 13x for 2020e and c6.5x for 2021e. We reiterate our HOLD, as we continue to find the earnings risk high in the absence of a firm turnaround in the LFL trend and a potentially negative impact from coronavirus. (22 pages)