Ted Baker shares at inflection point

Having plunged amid allegations aimed at the founder and CEO, Richard Hunter, head of markets at interactive investor, analyses Ted Baker's trading update.

Ted Baker is enjoying some respite in early trade to its recent tribulations, although it remains to be seen whether this optimism will prevail.

The third-quarter trading statement is something of a sideshow given recent allegations and, in any event, echoes much of what was reported at the half-year report in October. 

The retail division's performance is bearing up, with a strong contribution from the online business, with wholesale under some pressure as anticipated. The company had already guided that the second half of the year would remain challenging, although not necessarily for the reasons which have subsequently unfolded.

The shares are now down 43% over the last year, as compared to a 7.9% fall for the wider FTSE 250. This has resulted in some scant consolation to investors in the form of the dividend yield, which currently stands at 4.2%. 

Source: TradingView (*) Past performance is not a guide to future performance

Meanwhile, recent events have given rise to concerns that the 35% stake held by the founder and Chief Executive could be disposed of and, while extremely unlikely at this stage, this would nonetheless provide a large overhang on the stock.

The sharp decline in the share price, which has lost 23% over the last week, poses a number of questions, not least of which is whether investors were waiting for an excuse to exit the stock. 

Historically, Ted Baker was a swanky brand with an earnings valuation to match. The derating of the stock has brought the multiple down to a level of just over 10 times earnings, as opposed to the 30 times figure the company previously attracted. 

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This in turn may leave the shares at an inflection point. The market consensus of the shares as a 'buy' has been under pressure in recent days as a number of downgrades have hit the stock. At the same time, bulls of the global lifestyle brand remain convinced that the precipitous share price drop has actually presented a golden buying opportunity. 

With wider economic uncertainties weighing, let alone the shadow of Brexit casting doubts on the UK consumer, the jury remains out.

*Horizontal lines on charts represent levels of previous technical support and resistance.