Great results, so is Ted Baker’s slump an opportunity?

Ted Baker (TED) boss Ray Kelvin isn’t one for trotting out the usual retail excuses, so when he warns about challenging conditions shareholders tend to sit up and take notice.

The FTSE 250 Index (MCX) stock fell 8% as a result today, which is a shame given that the fashion chain has just produced an impressive set of full-year figures. Adjusted earnings per share (EPS) were up 12% to 127.7p while investors were rewarded with a 12.1% rise in the total dividend to 60.1p.

Liberum went as far as to describe the results as a “truly commendable performance”, with the company just about beating the house broker’s expectations at a time when others in retail have wilted under pressure.

Wayne Brown of Liberum still retains a target price of 3300p, which represents an upside of 21% on today’s level and is only slightly below the all-time peak for the stock of 3555p in November 2015.

He said: “We think the current rating does not appropriately reflect the group’s track record and does not reflect the value of the Ted Baker brand, which supports strong growth.”

Brown pointed out there was the prospect of faster growth as the international side of the business continues to develop.

Source: interactive investor              Past performance is not a guide to future performance

There are, however, some clouds on the horizon as Kelvin – who has seen a few downturns during 40 years in the fashion industry and 30 years running Ted Baker – warned about challenging trading conditions in many global markets.

The unseasonal weather across Europe and the East Coast of America also hasn’t helped at the start of the Spring/Summer season. The company has 532 stores and concessions worldwide, with 195 in the UK, 113 in Europe, 127 in North America, 88 in the Middle East, Africa and Asia and 9 in Australasia.

This growing international audience should offer some protection from the uncertainty affecting its home market, although in the year to January 27 the UK division still managed to grow retail sales by 7.7% to £301.1 million.

US and Canada sales were up 16.2% to £120.1 million as Ted Baker racked up total revenues of £591.7 million last year, a figure including wholesale and licensing operations and representing an increase of 11.4% on a year ago.

Liberum pointed out that profits growth of 12.3% not only exceeded sales growth but was also better than the broker’s own estimate of 11.9%.

The tougher backdrop in the UK and Europe means that Liberum has trimmed its forecasts for this year, although the new profit figure of £81.1 million is still 10% higher than the 2017/18 financial year.

The dividend is now forecast to be 66.3p, giving a projected yield of 2.2%, before rising to 73.8p and yielding 2.5% the following year.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company’s or index name highlighted in the article.

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