Ted Baker PLC
About the company
Ted Baker Plc engages in the design, wholesale, and retail of menswear, womenswear, and accessories under the Ted Baker name. The company operates through three segments: Retail, Wholesale, and Licensing. It offers a range of collections, including global, accessories, bedding, children’s wear, crockery, eyewear, footwear, fragrance and skin wear, gifting and stationary, jewellery, lingerie and sleepwear, luggage, neckwear, rugs, suiting, technical accessories, tiles, and watches. The company distributes its products through retail stores, concessions, independent retailers, and department stores, as well as through its e-commerce business. It operates 532 stores and 195 concessions comprising 195 in the United Kingdom; 113 in Europe; 127 in the United States and Canada; 88 in the Middle East, Africa, and Asia; and 9 in Australasia. Ted Baker Plc was founded in 1987 and is headquartered in London, the United Kingdom.
I would like to explore the potential on Ted Baker PLC. I have previously had some decent success trading this stock and although the company is currently going through some tough times, the underlying strong fundamentals are still holding strong and I certainly don’t think we should write this one off just yet.
Ted Baker saw its CEO and founder, Ray Kelvin step down in March 2019 based on allegations of misconduct. They reported a 26% fall in annual profits, just two weeks after the chief executive quit. The retailor said Brexit uncertainty, “competitive discounting” across the retail sector and the Great British weather were to blame as profits plunged to £50.9M in the 12 months ending 26 January, down from £68.8M a year earlier. Those issues damaged margins, which slumped to 58.3% (2018: 61.0%) more than offsetting the 4.4% rise in revenue to £617.4M (2018: £591.7M). Furthermore, House of Fraser’s collapse dented profits by £0.6M. Margins have remained under pressure at the start of the new financial year (from Jan 2019) too, with the company claiming that promotional activity has continued to rise, not just in the UK, but also abroad.
That being said and considering the tough start to the year, if we look at Ted Baker’s intrinsic value, we can see its share price is below the future cash flow value, demonstrating the potential for the price to rise. As the chart below suggests, Ted’s Balance Sheet and Cash Flow Statement shows year on year growth with its Income Statement taking a slight hit after a difficult year.
Currently, Ted Baker’s debt is well covered by their operating cash flow (45.7%, greater than 20% of total debt). In addition to this, their interest payments on debt are well covered by their earnings as demonstrated below. In terms of returns from investment, Ted Baker has invested its equity funds well leading to a 22% return on equity which is above the sensible minimum of 20%. Furthermore, its return on assets of 12% exceeds the GB Luxury industry of 8.1%, indicating Ted Baker has used its assets more efficiently than the industry average. Ted Baker’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Ted Baker has a good historical track record with positive growth and profitability, there’s no certainty that this will continue into the future.
Looking at the technicals, Ted Baker PLC is sitting a zone around the £15 mark which has which has previously held as a support level. This is after the sell-off from the CEO’s departure and fall in profits. I think price may continue to sell off temporarily with the uncertainty in the current market, but both the RSI & Stochastics are sitting low and technically an upwards move looks very possible back to the £20 mark for an approximate 30% upwards move.
The board, led by acting current chief executive Lindsay Page, claims that Ted Baker has continued to grow across each of the brand’s distribution channels despite difficult trading conditions across a number of the group’s global markets. In my opinion, this resilient sales performance reflects the strength of the brand and the quality of their collections. With a no-deal Brexit looking less and less likely, a technical set-up forming and strong fundamentals backing Ted Baker PLC I think its fortune could be changing. A hold for the moment but I’m expecting a strong recovery so something to perhaps keep an eye on in the coming months.
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