The power of Ted Baker’s brand

Global growth po­ten­tial and retail re­silience are rea­sons to in­vest

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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.

RETAIL RE­SILIENCE

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.

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