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HSBC downgrades Ted Baker, Liberum reiterates 'buy'

By Michele Maatouk

Date: Wednesday 05 Dec 2018

HSBC downgrades Ted Baker, Liberum reiterates 'buy'

(Sharecast News) - Analysts were divided in their opinions of Ted Baker's recent woes on Wednesday, with HSBC cutting its recommendation on the stock as Liberum reiterated its positive stance in the aftermath of the "forced hugging" scandal.
HSBC cut the stock to 'hold' from 'buy', slashing the price target to 1,450p from 2,900p as it argued there was limited visibility as to when market uncertainty over Ted Baker's leadership will be resolved after the company announced a formal investigation into the unwanted advances of CEO and founder Ray Kelvin.

Nevertheless, the bank said it remains fundamentally a good company, which is well positioned to transition to online.

"A high proportion of variable costs in its retail division (e.g. concessions) and minimal exposure to bricks and mortar assets (i.e. 23 stores in the UK) are key strengths," it said. "This substantially differentiates Ted Baker, reducing the risk attached to declining store sales densities. Furthermore, sales densities are not a reliable indicator of top-line growth and need to be considered alongside online."

Liberum approached Ted Baker's recent troubles from a different angle, reiterating its 'buy' rating on the stock as it said the 43% de-rating over the past 12 months means it now offers a "very strong buying opportunity".

"The current 12-month forward price-to-earnings ratio of 9.3x is just too low for such a high quality business," it said. "While recent news flow is unhelpful, we believe the impact on the group's brand strength and longer-term growth prospects is likely to be minimal."

Liberum said trading conditions have been subdued, but Ted's positioning as a global lifestyle brand leaves it far better placed than most.

"If the current low valuation persists, Ted could look increasingly attractive to an acquirer," it added.

Ted Baker is due to release a third-quarter trading update on Thursday.

At 1250 GMT, the shares were down 0.7% to 1,410p.


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