Interactive Investor

Shares round-up: Ted Baker rallies as Aston Martin U-turns

23rd February 2022 13:16

Graeme Evans from interactive investor

There have been plenty of ups and downs for this pair over the years. Our City expert explains what’s moving them this time. 

The three-year £25 to £1 reversal for Ted Baker (LSE:TED) shares showed signs of being near its end today after the fashion retailer's Christmas trading update boosted City confidence.

Shares jumped 14% as the former FTSE 250-listed stock overcame Omicron headwinds to report a further strong sequential improvement in sales in its fourth quarter. House broker Liberum also praised the group for continuing to stick by its 2023 turnaround earnings targets, despite everything thrown at it over the past two years of Covid-19.

The City broker highlighted the potential for shares to more than double to 225p, while Panmure Gordon's Tony Shiret is looking for 300p as the company attempts to re-establish itself as an international lifestyle brand with the valuation to go with it.

Liberum analyst Wayne Brown added: “Trading on less than five times 2022 earnings makes little sense for a business offering significant margin upside, strong sales momentum and the benefit of the e-commerce re-platforming all still to come.”

Ted Baker once boasted a proud stock market reputation, but its lofty valuation unravelled from 2018 after a perfect storm that included the controversial departure of founder and boss Ray Kelvin. The company's exposure to the struggling department store sector was far from helpful and sentiment was further shaken by a review finding an overstatement of inventories.

Chief executive Rachel Osborne took the helm in 2020 and has rejuvenated ranges, leading to a particularly strong performance in womenswear in today's update.

She has also improved the trading margin and overseen a better mix of full price sales as the company re-establishes its premium brand positioning. She added: “Ted is emerging from Covid a stronger more sustainable business and we're excited for the future.”

Another company where turnaround plans have made progress is Aston Martin Lagonda (LSE:AML), although the luxury car maker is finding it harder to engineer a share price recovery.

Under the leadership of executive chairman Lawrence Stroll, the company improved revenues by 79% to £1.1 billion and reduced pre-tax losses to £213.8 million in annual results today. The year saw the return of the brand to the Formula One race track, while on the sales front it shifted more than 3,000 DBX vehicles in the SUV's first full year of production.

It expects an overall 8% increase in volumes and 50% improvement in adjusted earnings in the current year, part of its Project Horizon transformation targets for 10,000 wholesale deliveries, £2 billion of revenues and £500 million of adjusted earnings by 2024/25.

About 75-90 Valkyrie hypercars are planned for shipment this year and the DBX707 and the V12 Vantage will be the first vehicles from the new management team to roll off the production line.

The operating environment remains challenging, however, with supply chains continuing to experience disruption at the start of 2022. Shares reflected this uncertainty in the FTSE 250 after initially rising 5% and then falling back to stand 6% or 63p lower at 1,035p.

Student accommodation business UNITE (LSE:UTG) led the FTSE 250 risers board, with shares up 5% or 51.7p to 1,042.5p on the back of results showing a 20% rise in earnings to £110.1 million.

It said demand continued to recover as it noted that university applications for 2022/23 are up 7% on pre-pandemic levels, with the medium-term outlook supported by significant demographic growth and government support for growth in international students.

Liberum said shares are trading on 24 times the company's 2022 earnings guidance, leading it to believe there is better value elsewhere in the sector on a one-year view.

However, it said Unite is a position to deliver sector-leading returns: “This is enhanced by the group’s first mover advantage focused on leading UK universities, coupled with established university relationships and a clear service focus aided by its operational platform.”

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