The power of Ted Baker’s brand
Global growth potential and retail resilience are reasons to invest
Arecent rebound at Ted Baker (TED) could mark the start of a sustained rally for shares in the UK-based premium lifestyle brand. A buyer with a £31 price target, Liberum says its growth forecasts are prudently pitched and we believe the shares are worth buying at £26.77 as half year results (10 Oct) could spark upgrades.
Ted Baker is a quintessentially British brand with a quirky fashion offering, famed for its unwavering attention to detail and quality. Its range spans women’s and men’s clothing and accessories. Global brand sales have more than tripled to £1.1bn plus since 2009, demonstrating Ted Baker is a leading global premium lifestyle brand rather than a mere retailer.
GLOBAL GROWTH SCOPE
Liberum likes Ted’s scope for growth in the outperforming affordable luxury segments of the global clothing market. It explains that the retail industry is seeing a polarisation of markets between brands with a strong, distinct market position such as Ted Baker and value-led players, with less defined brands being left out in the cold.
Ted is successfully using e-commerce to enter new markets; it has taken ownership of the bulk of its wholesale relationships; and it boasts a profitable and growing licence business. Excitingly, Ted Baker has barely scratched the surface of its international growth opportunity.
While the outlook for UK retail is challenging, the £1.17bn cap’s model is more defensive than peers.
As Liberum explains: ‘With only 32 UK and four European own stores, respectively, the risk of becoming over-spaced is limited.
‘Moreover circa 60% of TED’s estate is run through concessions, and this provides profit and loss protection through turnover-based rents, has lower capital requirements, and provides targeted customer exposure.’
The broker’s price target implies 15.8% nearterm upside. For the year to January 2018 Liberum forecasts improved pre-tax profit of £73.5m (2017: £65.8m), rising to £83.3m and £94.4m in 2019 and 2020 respectively.
Liberum also explains ‘the group has passed the peak of its investment cycle with IT systems and logistics all materially upgraded in the last five years, resulting in a business primed for the future. Ted Baker has reached an inflection point where cumulative free cash flow of £115m will be generated over the next three years versus £71m generated over the last ten.’
Dividend progression to 58.6p (2017: 53.6p) is on the cards this year, a payment covered more than twice by forecast earnings of 125p. The shareholder reward is set to build to 66.4p and 75.3p over the following years.