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Ted Baker After Brexit Sell-Off

British retailer Ted Baker has sold off Brexit and is at a good valuation

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Jul 07, 2016
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Ted Baker (

TED, Financial) is a British retailer that has experienced high growth and high profit margins and has a reasonably priced stock. The stock sold off after Brexit and is at a pretty decent valuation.

The company has 44 million shares and trades at a market cap of £968 million ($1.258 billion). It takes $1.30 to buy one pound and the exchange is at a 30-year low. The trailing dividend was 47.8 pence, and the stock has a dividend yield of 2.17%. Basic earnings per share were 101 pence, and the price-to-earnings ratio is 21.8.

Growth has been outstanding. Sales grew from £216 million ($281 million) in 2012 to £456 million ($593 million) in the latest year. Earnings per share grew from 41 pence to 101 pence over that time frame. Ted Baker is very profitable and has great margins, too. Operating margins are 13%, return on equity is 28.25%, and return on income is 18.28%.

The balance sheet is pretty decent with £17 million ($22.1 million) in cash and £30 million in accounts receivable ($39 million). The liability side shows £39 million ($50.7 million) in loans, £32 million in accounts payable ($41.6 million) and £59 million ($77 million) in debt.

The company increased its selling space by 9.7% year over year. That’s a pretty good clip. Baker’s 32.3% increase in online ecommerce is amazing, too. Like many retailers, Baker has a handful of retail shops but gets most of its revenues from other retailers. Pretty impressive for a company that started out as a shirt shop only 28 years ago.

The company manufactures and markets men's and women's clothing, crockery, fragrances, skinwear, eyewear, ties and many other items. I was surprised how reasonably priced its clothing is. Men’s shoes are about $100 a pair. Blouses and dresses range from $25 to $200, again, pretty reasonably priced. Men’s suits for sale at Nordstrom (

JWN, Financial) are in the $400 range after the sale discount.

Another potential driver is the weak pound. As the pound has been crushed due to Brexit, it makes companies that report in the pound increase profits, assuming they do a lot of business denominated in other currencies. According to sensitivity analysis from the annual report, a 10% weakening of the pound would have an impact of £823 million ($1.07 billion). Baker receives only 25% of sales outside of the pound.

I might invest in the stock. The time to invest in retail is during the growth phase, not after things have slowed down. The stock is cheap but only because growth has been so high. Is Brexit really going to kill Ted Baker’s sales? Why would it? A global slowdown certainly would but Brexit? I don’t think so. Furthermore, who really even knows what Brexit is all about? Most pundits were wrong to begin with and are now having to backtrack.

Disclosure: We do not own shares in any stocks mentioned in this article.

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