Is the Ted Baker share price now a bargain?

With profit warnings and senior management leaving, is now the time to buy Ted Baker shares?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Its been a very bad month in a pretty bad year for clothing retailer Ted Baker (LSE: TED). And with the latest news that the fairly aggressive hedge fund Toscafund has increased its holding in the company to 12%, I am looking at it once again to work out what I think will become of the share price.

Two for the price of one

The dramatic and unexpected departure of senior management is rarely good for a firm, and last week Ted Baker suffered the news that both CEO Lindsay Page and Executive Chairman David Bernstein will be leaving the company. The firm made it clear that their replacements Rachel Osborne and Sharon Baylay respectively, are only temporary measures.

Understandably this hurt the stock, and has led to the usual talk that Ted has been “plunged into crisis”, which given the troubles it has already been suffering, is perhaps not much of an overstatement. Indeed, Mr Page has only been in the role since April, when previous CEO and Founder Ray Kelvin quit amid controversy over inappropriate behaviour.

Even worse for Ted Baker shares, though perhaps somewhat less unexpected, was the warning that full-year profits may fall by as much as 90% to just £5m — a level not seen since the 1990s. In a similar vein, the company saw its share price drop almost 20% to its lowest level in 10 years.

A bargain for some

Toscafund Asset Management certainly noticed the drop, and presumably considered it to be a bargain, increasing its holding in TED to almost 12%. Four days before the announcement, Toscafund held a 5.9% stake in the company, which it increased to 11.9%, placing it as the second largest shareholder after Mr Kelvin.

These kind of big-player share moves can often mean trouble for the average investor, and in this case its potential impact, if any, is uncertain at best. Since the departure of Mr Kelvin, there has been much speculation that he may try to take the company private in order to reinstate himself in some way.

The controversy over the reasons he left has always been something of a barrier in the way of this possibility – expectations being he would find it difficult to find private equity investors who were willing to take on the bad press. As hedge funds generally care less about controversy, if Toscafund becomes a potential ally for Mr Kelvin, it may help this agenda.

On the other side of the argument, however, is that this particular fund has a history of buying cheap companies that it thinks it can help fix and turn around. This increased holding may be an indication that it thinks Ted Baker could be that sort of opportunity. That said, most long-only funds have generally been decreasing their positions in TED, while the latest official data shows short selling activity in the shares is on the up. Toscafund’s position is certainly a contrarian one.

Investing now, I think, is perhaps too much of a risk for me. While the brand and clothing lines are generally well respected, there is still a reason the company has been doing so poorly – sales have been bad. The risk of the stock being taken private is still far from over. Cheap the shares may be, but I am not quite sure I would call them a bargain just yet.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »