Corporate Finance Project: Ted Baker Valuation and Analysis

This project undertakes a comprehensive financial analysis of Ted Baker, a prominent international fashion brand. The analysis begins with an examination of Ted Baker's business model, including its shift from retail outlets to e-commerce, and its sources of revenue. The project explores the company's market position, business strategies, revenue, and profitability trends from 2011 to 2019. Furthermore, the project includes a detailed firm valuation, projecting revenue growth and profit margins over the next ten years. A dividend discount model is then applied to determine the intrinsic value of Ted Baker's shares. The project concludes with a comparison of the valuation model's results to the actual share price movements, offering insights into the company's financial health and investment potential. The analysis uses financial data, including revenue, gross profit, and net profit, to forecast future performance and assess the company's valuation.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to question 4: Ted Baker....................................................................................................2
a) Business model, sources of revenue and profit margin of Ted Baker.....................................2
Market of the Ted Baker..........................................................................................................2
Business strategies of the Ted Baker.......................................................................................3
Revenue profit of the Ted Baker.............................................................................................4
Profitability of the Ted Baker..................................................................................................5
b) Firm valuation of the Ted Baker.............................................................................................6
Realistic model for projection of the revenue growth over the next ten years........................6
Profit margin model for the next ten years..............................................................................7
Dividend discounting model for valuation of business of the Ted Baker...............................8
c) Comparison of valuation model and actual share price movement of the Ted Baker...........10
References and bibliography.........................................................................................................12

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Answer to question 4: Ted Baker
a) Business model, sources of revenue and profit margin of Ted Baker
Ted Baker is a well-known international brand in retain fashion market. The company
started its business with an objective of selling fashion and luxurious wears through their retail
outlets or stores. With the evolution and enhancement in technology and an increasing and
intense competition from the ecommerce business, the company switched their business model to
the ecommerce segment also. Now the company operates their business through retail outlets as
well as sells their products through online platform or through the ecommerce model. A recent
study has shown that there is a significant increase in sale through ecommerce for the Ted Baker.
The ecommerce sales for the Ted Baker has been increased by 24.1% in the year 2017 to 2018.
The study also reveals that the retail sales through the retail outlet has been decreased by almost
9.4%. Therefore, as the market is switching more towards the ecommerce sales rather than the
retail outlet sale, the Ted Baker has also revised their strategies oriented towards the ecommerce
business. Therefore, it can be concluded that the business model of the company is based on the
retail sales of fashion and luxurious products through their already established retail outlets, but
with the advancement in technologies they are adopting the ecommerce business rapidly and a
very significant and positive growth in ecommerce business of the Ted Baker can be observed
(Ramos, Santos and Rebelo 2015).
Market of the Ted Baker
Ted Baker is a multinational fashion brand based on their operation mainly in United
Kingdom. Hence, the domestic fashion market of the United Kingdom is mainly dominated by
the Ted Baker. There are many other international brands in the United Kingdom fashion market

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also. Some of the biggest competitors for the Ted Baker in the United Kingdom fashion market
for the Ted Baker are Hugo Boss, Michael Kors, Kate Spade. Following chart can be used for
showing the market share and reach to the customers in the United Kingdom fashion market
(Ramos, Santos and Rebelo 2015).
It can be observed from the above graph that, the Karen Millen the biggest competitor of
the Ted Baker and the market reach of the Ted Baker is higher than the market reach of the
Karen Millen. Hence, from the view point of competitiveness and market share, the Ted Baker is
in a better position. The company is also having an international presence in the global fashion
and retail market through their ecommerce business platform. Hence, the market of the company
is not only restricted to the national geographical boundary or the retail outlets, they are also ding
their business in the international level through their ecommerce business platform thereby
making a challenge and competition to the other brands.

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Business strategies of the Ted Baker
The main business strategy of the company Ted Baker is to sell quality and luxurious
fashion products and to gain a huge market share in the industry. They are continuously working
with their research and development team to develop and sell trendy and fashionable products to
attract customers and to serve them with their needs. Though the company started their business
to sell their products through the retail outlets only, later on with the essence of moving towards
the online business, they also have revised their business strategy and started selling their
products through the ecommerce platform (Ramos, Santos and Rebelo 2015).
Revenue profit of the Ted Baker
The main source of the Ted Baker is the retail sales of Fashion and Luxurious products.
They have been performing very well financially since the last few years with various strategic
changes in their business model. Following chart shows the overall revenue of the Ted Baker for
the year 2011 to 2019.

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It can be observed from the above analysis that, there is a significant growth in revenue
for the company over the last few years. It can be observed that since 2011 the revenue of the
company was increasing at a faster rate till 2015 and a marginal fall in revenue can be observed
in the year 2016. Later on again the revenue of the company starts increasing till the year 2019.
Hence, it exhibits the strength of their business strategies and business model (Pinto 2020).
Profitability of the Ted Baker
Profitability is another measure of the financial performance of a company. It can be
observed that the company experienced a significant growth in their revenue over the years 2011
to 2019. Profitability as a percentage of revenue can help in interpreting and understanding the
financial performance of a company over the period. Taking information of revenue, gross profit
and net profit of the Ted Baker from the annual report of the company, following chart analysis
and chart can be prepared for interpreting and understanding the profitability of the company.

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It can be observed from the above bar chat that, the gross profit margin was almost at the
same level over the last few years. A marginal fall in gross profit margin can be observed in the
year 2019 as compared to the preceding few years. In the same way the net profit margin of the
company was almost stable over the last few years. There was a margin increase in net profit
margin from the year 2015 to 2016 and thereafter the net profit margin fall significantly in the
year 2019.
b) Firm valuation of the Ted Baker
Realistic model for projection of the revenue growth over the next ten years
From the income statement of the Ted Baker Plc., annual revenues have been taken for
the last five years from 2015 to 2019. Based on the last five years’ revenue the growth rates for
the years 2016 to 2019 has been computed. Then the expected revenues have been forecasted
using the average growth rate of the last four years. Lastly, the average growth rate for the last
fifteen years have been considered as the constant growth rate for the future years. Following
table shows the projected or forecasted revenue for the next ten years.

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Particulars 2015-01 2016-01 2017-01 2018-01 2019-01 2020 F 2021 F 2022 F 2023 F 2024 F 2025 F 2026 F 2027 F 2028 F 2029 F Growth %
Revenue 387,564 456,169 530,986 591,670 617,442 694,448 771,978 848,058 928,299 1,027,982 1,133,914 1,248,326 1,375,015 1,516,923 1,671,891
Growth rate 17.70% 16.40% 11.43% 4.36% 12.47% 11.16% 9.86% 9.46% 10.74% 10.30% 10.09% 10.15% 10.32% 10.22% 11.05%
Cost of revenue 152,359 183,147 207,257 230,865 257,347 293,526 330,278 371,101 417,869 471,714 531,114 598,088 673,882 759,399 855,397
Growth rate 20.21% 13.16% 11.39% 11.47% 14.06% 12.52% 12.36% 12.60% 12.89% 12.59% 12.61% 12.67% 12.69% 12.64% 13.13%
Gross profit 235,205 273,022 323,729 360,805 360,095 400,922 441,700 476,957 510,429 556,268 602,800 650,238 701,133 757,524 816,495 16.48%
TED BAKER PLC Revenue Forecast
It can be observed that, the average growth rate in revenue for the last four years starting
from 2016 to 2019 was almost 12.47%, and the average growth rate for the fifteen years
including the projected ten years is 11.05%, which has been considered as the constant growth
rate for future years. Same technique has been used for computing the growth rate in cost of
revenue and the cost of revenue has been projected using the average of last four years in the
same way. It can be observed that the average growth rate in revenue for the last four years from
the year 2016 to 2019 was almost 14.06% and it is 13.13% for the fifteen years including the
forecasted ten years. In the forecasting process, the four years moving average has been used in
each of the revenue and cost of revenue forecast. The constant growth rate for sales revenue and
the cost of revenue, will be used in further analysis and valuation of the business of the Ted
Baker.
Profit margin model for the next ten years
Based on the sales forecast and the cost of sales forecast, the gross profit and net profit of
the company have also been forecasted. The average growth rate in cost of sales remains within a
limit of 12% to 13% and the constant growth rate in cost of sales has been considered at 13.13%.
Following table shows the profit forecast for the next ten years with a detail breakup of expenses
and other incomes.

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Particulars 2015-01 2016-01 2017-01 2018-01 2019-01 2020 F 2021 F 2022 F 2023 F 2024 F 2025 F 2026 F 2027 F 2028 F 2029 F Growth %
Revenue 387,564 456,169 530,986 591,670 617,442 694,448 771,978 848,058 928,299 1,027,982 1,133,914 1,248,326 1,375,015 1,516,923 1,671,891
Growth rate 17.70% 16.40% 11.43% 4.36% 12.47% 11.16% 9.86% 9.46% 10.74% 10.30% 10.09% 10.15% 10.32% 10.22% 11.05%
Cost of revenue 152,359 183,147 207,257 230,865 257,347 293,526 330,278 371,101 417,869 471,714 531,114 598,088 673,882 759,399 855,397
Growth rate 20.21% 13.16% 11.39% 11.47% 14.06% 12.52% 12.36% 12.60% 12.89% 12.59% 12.61% 12.67% 12.69% 12.64% 13.13%
Gross profit 235,205 273,022 323,729 360,805 360,095 400,922 441,700 476,957 510,429 556,268 602,800 650,238 701,133 757,524 816,495 16.48%
Operating expenses
SGA Expenses 195,618 227,197 273,811 307,480 317,405 356,927 401,369 451,346 507,545 570,743 641,809 721,724 811,589 912,644 1,026,282 12.45%
Other operating expenses (10,853) (13,544) (15,792) (22,078) (25,103) (31,695) (40,018) (50,527) (63,795) (80,548) (101,700) (128,406) (162,126) (204,700) (258,455) 26.26%
Total operating expenses 184,765 213,653 259,619 285,402 294,042 328,824 367,719 411,216 459,858 514,253 575,083 643,108 719,180 804,249 899,382 11.83%
Operating income 50,440 59,369 64,110 75,403 66,053 70,142 74,484 79,096 83,992 89,192 94,714 100,577 106,803 113,415 120,437 6.19%
Interest Expense 1,184 1,430 2,933 3,301 3,777 4,155 4,570 5,027 5,530 6,083 6,691 7,360 8,096 8,906 9,797 10.00%
Other income (expense) (485) 725 94 (3,313) (11,419) (11,990) (12,589) (13,219) (13,880) (14,574) (15,303) (16,068) (16,871) (17,715) (18,600) 5.00%
Income before taxes 48,771 58,664 61,271 68,789 50,857 51,292 51,731 52,173 52,620 53,070 53,524 53,982 54,443 54,909 55,379 0.86%
Provision for income taxes 12,921 14,429 14,703 16,045 10,129 9,691 9,272 8,872 8,488 8,121 7,770 7,435 7,113 6,806 6,512 -4.32%
Net Income 35,850 44,235 46,568 52,744 40,728 41,836 42,975 44,144 45,346 46,580 47,847 49,149 50,487 51,861 53,272 2.72%
TED BAKER PLC Revenue Forecast
In the above table all the expenses has been forecasted using the average growth rate of
the last four years from 2015 to 2019. In the same way the net income of the Ted Baker has also
been forecasted. It can be observed that the average growth rate in net income for the Ted Baker
for the last five years is 2.72%. This average growth rate in net income has will be used for
further analysis and valuation of the business.
Profit margin is the measure of the profitability of the company compared to the revenue.
Based on the forecasted revenue and forecasted gross profit and net profit, the gross profit
margin and net profit margin have been computed as follows for the next ten years.
Profitability Margins 2015 2016 2017 2018 2019 2020 F 2021 F 2022 F 2023 F 2024 F 2025 F 2026 F 2027 F 2028 F 2029 F
Gross Profit 235,205.00 273,022.00 323,729.00 360,805.00 360,095.00 400922 441700 476957 510429 556268 602800 650238 701133 757524 816495
Revenue 387,564.00 456,169.00 530,986.00 591,670.00 617,442.00 694448 771978 848058 928299 1027982 1133914 1248326 1375015 1516923 1671891
Gross Profit Margin 60.69% 59.85% 60.97% 60.98% 58.32% 57.73% 57.22% 56.24% 54.99% 54.11% 53.16% 52.09% 50.99% 49.94% 48.84%
Net Profit 35,850.00 44,235.00 46,568.00 52,744.00 40,728.00 41836 42975 44144 45346 46580 47847 49149 50487 51861 53272
Revenue 387,564.00 456,169.00 530,986.00 591,670.00 617,442.00 694,447.99 771,978.40 848,057.76 928,298.90 1,027,981.89 1,133,913.97 1,248,325.80 1,375,014.79 1,516,922.52 1,671,891.38
Net Profit Margin 9.25% 9.70% 8.77% 8.91% 6.60% 6.02% 5.57% 5.21% 4.88% 4.53% 4.22% 3.94% 3.67% 3.42% 3.19%
Ratio Analysis
Dividend discounting model for valuation of business of the Ted Baker
Valuation of business means the valuation of net worth of the company, or the valuation
of net assets available to the shareholder of the company. The main objective of the valuation of
business is to calculate the intrinsic value of the shares of the company, and based on that and
comparing with the market value of the shares, the investors can make buy or sell decisions.
There are various models that can be used for such valuation process such as free cash flow

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model, net assets method, or the Dividend discounting model. Dividend discounting model is the
most efficient and effective model that can be used for valuation of the shares of the Ted Baker
Plc. In the following part the Dividend Discounting model along with the discounting technique
has been applied for ascertain the intrinsic value of the shares of the Ted Baker Plc (Aye et al.
2015).
Particulars Value
Risk Free Rate 2.10%
Market Return 4.50%
Beta 0.81
Required Return (Re) 4.05%
Required Rate of Return
Required Return: Rf+Beta*(Rm-Rf)
Required rate of return for the Ted Baker has been computed using the risk free rate of
2.10% and the market return of 4.50% and a risk coefficient of the shares of the Ted Baker as
0.81. The market return has been computed from the FTSE 100 index return and the risk free rate
has been considered as the government bond rate. Applying the capital assets pricing model, the
required rate of return can be computed as 4.05% for the Ted baker Plc (Pinto 2020).
Dividend Per Share 0.485
Earnings Per Share 0.92
Retention Ratio 47.28%
Return on Equity 8.07%
Growth Rate 3.82%
Retention Ratio
Growth Rate: Retention Rate*ROE

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In the above part, the growth rate has been computed as the product of retention ratio and
the return on equity. It can be observed that applying the above technique, a growth rate or a
dividend growth rate of 3.82% can be computed for the Ted Baker Plc.
Cost of Equity 4.05%
Cost of Debt 8.78%
Tax Rate 30%
Post Tax Cost of Debt 6.1%
Weight of Equity 66.01%
Weight of Debt 33.99%
WACC 5.66%
Weighted Average Cost of Capital
Taking the cost of equity and the cost of debt and the respective weights of the debt and
equity, the weighted average cost of capital for the Ted Baker Plc. has been computed to 5.66%
as shown above (Pinto 2020).
Dividend (Do) 0.485
Growth Rate 3.82%
Expected Dividend (D1) 0.50
Required Return (Re) 4.05%
Growth Rate (g) 3.82%
Intrinsic Price (Po) 213.39
Current Value 230.40
Overvalued 7.38%
Recommendation Sell
Formula: Po: D1/(Re-g)
Dividend Discount Model

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Applying the dividend discounting model the intrinsic value of the Ted Baker has been
computed to 213.39, while the market value of the shares of the Ted Baker was 230.10. It can be
observed that the market value of the shares of the Ted Baker Plc. is higher than the intrinsic
value (Pinto 2020). As per the efficient market theory, as the information flows perfectly in the
market, the market price of the shares will tend towards the intrinsic value. Hence, it can be
expected that, the market price of the shares of the Ted Baker will be falling more in future.
Therefore, it can be recommended to sell the shares of the Ted Baker rather not to purchase the
shares of the Ted Baker (Aye et al. 2015).
c) Comparison of valuation model and actual share price movement of the Ted Baker
In the above part the dividend discounting model has been applied for valuation of shares
of the Ted Baker. It can be observed that the result of the dividend discounting model or the
intrinsic value of the shares of the Ted Baker comes to 213.39, which is much lower than the
market price of the shares. Therefore, there is a need for comparing and checking the reliability
of the valuation model used. It can be observed for the historical share price of the company that
there is a significant movement in the share price of the Ted Baker, and there was a steady
increase in the share price over the last few years. It might be because of the improvement in
financial performance of the company. In most recent years the decrease in net profit and
revenue can be observed for the company, hence, in recent future the share price of the company
will be falling again. Therefore, result of the valuation model and the recent movement of the
share price justifies each other (Aye et al. 2015).