If Brexit Britain is to be all about worldwide expansion, then Ted Baker is just the sort of retailer-cum-fashion brand that the City should want to foster. Unashamedly global in its outlook, Ted Baker’s aim is to take the quirky fashion sense that helped it to grow from a Glasgow boutique into one of Britain’s leading dressers to markets thousands of miles from home.
On the evidence of the latest results, while Britain remains by far the larger part of the business, Ted Baker is making good progress on its strategy. From just over a tenth of its overall sales eight years ago, overseas accounts for 40 per cent of group turnover. This trend is expected to continue despite challenging conditions in the United States, where it has concessions to sell its wares via upmarket retailers such as Bloomingdale’s and Nordstrom.
Even in the highly competitive US market, Ted Baker’s growth has been strong and from sales of only £11 million in 2009, the company reported revenue of £148 million in its most recent financial year. When you take into account that the American clothing market is worth more than £200 billion, then it’s clear the business doesn’t need to increase its share much for sales to grow substantially.
Sales in the Middle East, Asia, Africa and Australasia remain a tiny part of the total, but are growing strongly, a prospect that is unlikely to dim in the near future.
And then you have online. While many established retailers have struggled to adapt to the digital world, Ted Baker has been one of the leaders and the company’s continued investment in its technology is expected to pay dividends. Over 2015, 2016 and the latest financial year, Ted Baker has invested £41.8 million in its business, much of it to boost its online proposition. This marked a serious escalation in spending from the £13 million it spent over the preceding five years. Not for nothing did analysts describe its IT systems as among the best-in-class and the investment is already starting to feed through to the bottom line.
Ecommerce sales make up nearly a fifth of the group total and have risen at a compound annual growth rate of 53 per cent since 2009. In the UK and Europe, online accounts for close to a quarter of sales and ecommerce revenue in the region grew by 37 per cent year-on-year.
At the same time, unlike some established clothing retailers, Ted Baker is relatively light on the physical stores front. Across Britain and Europe, its total retail sales space is about 250,000 sq ft, compared with the more than a million sq ft operated by competitors such as Supergroup. And where it does have stores it generates substantial sales, making revenues per store more than double those of some competitors.
Its stores are highly focused towards concessions, giving Ted Baker greater flexibility over its costs than rivals, and the company has moved to restructure its distribution set-up, including the closure of two of its three European distribution centres to operate out of a single site.
Ted Baker has maintained a healthy yield for investors, with its dividend yield forecast to reach 2.8 per cent in 2019 against an estimated sector average of 2.4 per cent, according to Liberum. Yet, on a price to earnings multiple, Ted Baker’s valuation is far from demanding at 13.2 times 2017 earnings before interest, tax, depreciation and amortisation. Indeed, compared with online-only rivals such as Asos and Boohoo.com, which trade at well above twice this level, it looks rather cheap.
With strong cashflows, this looks like a good moment to buy.
My advice Buy
Why Ted Baker is making good progress with its global expansion and is well placed for a digital future. At current valuation, it looks like a buy
Robert Walters
Considering how much employers like to talk about the importance of staff, they can be remarkably relaxed about how they are hired. One of the big trends in HR is the outsourcing of recruitment to specialist firms.
Robert Walters is one of the big beneficiaries of so-called RPO, or recruitment process outsourcing. “HR departments are really not very good at recruitment and don’t like it,” according to Mr Walters, who founded the business in 1985. RPO accounts for 20 per cent of the company’s revenues. It’s as profitable as conventional recruitment, but the contracts typically are for three years and the clients prove sticky. Better still, not all recruiters are doing it. Yet.
RPO was one of the reasons that Robert Walters produced an underlying 21 per cent increase in revenues to £90.7 million in the September quarter and alerted analysts to upgrade their full-year profit forecasts. It is on track to make about £33 million this year.
Recruitment is cyclical and the recovery in the global economy has been a tonic. Revenues from Europe rose by 31 per cent; North America did better, boosting the “other international” category by 75 per cent; and the UK grew by 15 per cent.
The company is galloping along nicely. The test for recruiters comes in harsher economic times. In the last deep downturn in 2009, Robert Walters managed to make a profit, just, and to maintain the dividend. There’s no debt and at the moment £12.6 million of net cash.
Robert Walters is geographically diversified. Britain accounts for less than 30 per cent of revenues and the proportion is falling. It has some juicy niches, including investment banking and IT. There are risks, not least litigation danger, especially in the US, but they seem well understood. At some stage Mr Walters, who is 63 and owns 3.3 per cent of the company, will retire, which raises the prospect of succession risk.
After yesterday’s 10 per cent lift in the shares to 600p, they trade on about 18 times upgraded forecast profits for this year and yield about 1.7 per cent. At these heady levels, a lot of the good news is already in the share price.
My advice Hold
Why Good growth prospects, but spicy valuation
