Ted Baker PLC – Requires operational efficiencies to be profitable.

Ted Baker PLC (LON: TED) is a FTSE All-Share lifestyle brand which operates with three divisions, namely Retail, Wholesales, and Licensing.

Recent News

21 July 2020: The Company announced the departure of Sharon Baylay from the Board as Director. His directorship was ceased with immediate effect.

Interim Results - for the 11-week period from 3 May 2020 to 18 July 2020 (“the period”)


(Source: Company Website)

As per the update released on 21 July 2020, the trading was resilient in the period with strong online performance and sophisticated cross-category merchandising. During the period, the Company revenue fell 50% and stores revenue declined 79% year-on-year. During the period, it progressed well with the launch of Ted's Formula for Growth (three-year transformation plan) and delivered enhanced working capital efficiency, reduced capital and operating expenditure, and improved retail store profitability. As of 11 July 2020, net cash was £56.7 million, which was ahead of management expectations. As at 18 July 2020, the available liquidity headroom was of £161.7 million.

Share Price Performance

 
1-Year Chart as of 20 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

Risk Assessments

The Covid-19 pandemic has significantly impacted the retail sales and overall revenue for the Company. Moreover, it is exposed to massive supply chain disruption. Further, it has significant borrowing and liabilities, which restricts the operational and financial flexibility. Also, the financial performance can be impacted by volatility in product prices amid dented consumer spending and confidence.

Valuation Methodology



Conclusion
During FY19, the Company reported a massive decline in profitability. In H1 FY20, trading performance was significantly ahead of the base case scenario, albeit it reported a significant decline in sales. Adjacently, E-commerce sales increased 35% year-on-year, which was 19% ahead of the decline in the base case revenue scenario. Going forward, it has adopted a three-year transformation plan, “Ted's Formula for Growth” to deliver the following by FY23: EBITDA margin of 7-10%, Net debt/EBITDA of 1x or lower, and at least £30m annual free cash flow. TED is also targeting 5% revenue growth in the medium term with reduced expenditures, efficient capital allocation, and better retail store profitability. From the technical standpoint, 14-day RSI is currently in the overbought zone, which means there is a likelihood for a short-term correction in the stock price.

Based on the current trading performance, progress over transformation and valuation done using the above method, we have given a “Watch” recommendation on Ted Baker PLC at the current price of GBX 93.80 (as on 20 August 2020, before the market close at 2.30 PM GMT+1), and we will recommend fresh buying at the right time.
 
*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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