Ted Baker PLC’s (LON:TED) growth prospects have largely dissipated due to a difficult premium apparel market and the company’s disconnect between price and brand, analysts at RBC Capital Markets said.
RBC downgraded its recommendation for Ted Baker’s shares to ‘sector perform’ from ‘outperform’ and slashed its target price to 900p from 1,900p, citing a lack of catalysts.
The broker pointed out that the fashion retailer has marked down more items than its peers, suggesting that the full price offer is not resonating with customers. That partly reflects “higher fashion content” but raises questions around its apparel pricing structure in the longer term, RBC said.
RBC revised its estimates for the 2020 fiscal year lower, cutting revenue by 2%, gross profit by 6% and pre-tax profit by 30%. The broker also reduced forecasts for 2021 to 2022.
Risk of lower dividend
It also thinks there is a risk the dividend could be lowered in 2020.
“Despite a positive free cash flow forecast for fiscal year 2020 (£17mln), most dividend scenarios result in a slight net debt increase, which may lead management towards a payout within the historical 50-60% range (vs 64% in FY19), resulting in lower dividend per share (47p per share on our estimates),” RBC said.
The broker added that potential bid approaches could provide some support to the share price but it does not expect a re-rating or Ted Baker's majority shareholders to positively appraise any offers at trough valuation given its shares are down 47% in the year to date.
In Wednesday’s late morning trading, Ted Baker shares were down 1.4% to 795.70p.