Amid this chaos, Ted Baker’s underlying business model is fundamentally proven, and it has a powerful, successful brand to support a recovery in its share price.

Make no mistake, this is not an opportunity for the fainthearted. But for those who can remain calm and measured while the markets try and figure out what is going on, I believe TED is measuring up well as a deep value opportunity.

The changing environment of fashion and retail

Retail has evolved over the last 20 years. It became commonplace for fashion brands to design, manufacture and retail their clothing and accessories, referred to as vertical integration. Brands such as H&M and Zara employ this model very successfully through achieving economies of scale in how they replenish their high-street stores stocks to keep up with fast fashion.

While it might work well for huge, mass market operators like the aforementioned, for a business like Ted Baker it requires significant investment to continue to expand its retail presence independently, especially as its products retail at a higher price point with a reduced variety in lines that require more focused positioning on the high street in more expensive locations.

Back to basics

Ted Baker’s point of differentiation is in its ability to design attractive clothes that appeal to its target audience, not in managing a retail operation.

I see incredible potential in TED’s profitable wholesale business, which deals with large department stores and retailers who stock a variety of clothing lines from multiple brands, meaning retailers shoulder the risk of slow-moving stock and overheads associated with operating a retail business.

This operating segment contributed £65m in operating profits, which represents 40% of TED’s total operating profit. Through reducing its retail presence, TED can focus on returning to its roots as a premium fashion brand. This illustrates the potential areas of expansion, and provides comfort that the path to recovery is by no means out of reach.

Follow the smart money

TED is approaching deep value territory, trading at 0.7 times net asset value (NAV), meaning the book value of its assets are in excess of its market capitalisation.

Since the recent share price collapse, I’ve been encouraged to invest in the near future due to the support of one of the City’s most aggressive hedge funds, Toscafund Asset Management, who gobbled up 12% more shares in early December to become the second largest shareholder, second only to founder Ray Kelvin, who owns around 35% of the company.

On this basis, I believe TED has plunged to its lowest point and investors should pile in before they miss the best deal of 2019!

The post While stocks last… join me & grab your share of Ted Baker at an unbeatable price! appeared first on The Motley Fool UK.

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Dexter Burt 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.

Let’s take a closer look at Ten Entertainment Group (LSE:TEG), a leading UK operator of bowling and family entertainment centres, trading under the Tenpin brand. This is a simple, easy-to-understand business I believe is of high quality and, at present, undervalued.

The group operates within the broader UK leisure market, and at present bowling has a share of 0.29% of this £126bn market. TEG’s strategy is to increase participation in bowling through providing reasonably priced, good-quality food and broaden its family entertainment offering. Sounds reasonable to me.

Capitalising on the experiential leisure trend

As mentioned, increasing bowling participation is the key driver. To support this and encourage families to visit sites, TEG is targeting areas of high footfall such as retail outlets. Attracting customers through its doors will over time become easier, with online streaming making a trip to the cinema simply less appealing and once on site, families will be more likely to play on the machines and enjoy a meal before, during or after they’ve enjoyed a game or two of tenpin bowling. Food and beverage and amusement machines contribute towards half of the groups sales, so this is a big part of the business.

Research shows that consumers are looking to spend their money on “doing things” rather than “buying things”, and this desire for experiential leisure time leaves TEG well placed to take advantage of this opportunity. TEG is also committed to reinvesting in its estate to keep sites modern and relevant. They typically operate a six to seven-year cycle and impressively manage to generate £1.50 for shareholders for every £1 spent over the course of this investment cycle.

Strong acquisition pipeline in a highly fragmented market

Ten Entertainment currently has a market share of around 20% of the tenpin bowling market, which is worth approximately £350m in total sales a year. The market leader Hollywood Bowl Group has a share of just over 40%, with the balance held by a high number of independent operators with between one and five sites. This fragmentation naturally presents an opportunity for the business to grow through acquisition and has identified a pipeline of 60 sites, which meet the group’s criteria.

Sales and profits set to soar

Ten Entertainment is trading at a discount to its larger competitor Hollywood Bowl, with a price-to-earnings (P/E) ratio of 16.7 versus 17.9. The investment case is strengthened with the knowledge TEG is expecting sales to reach £100m by 2021 and pre-tax profit is set to rise to £21m, representing over 100% growth from 2017 through to 2021. With a modest market share, a strong acquisition pipeline and an accomplished management team focused on delivering shareholder value, this is a quality business that is set to see its share price rise further.

The post 10-bagger alert! Why I’m ‘bowled over’ by this small-cap superstar appeared first on The Motley Fool UK.

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Dexter Burt has no position in any of the shares mentioned. The Motley Fool UK has recommended Hollywood Bowl. 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.

Growth at any cost…

The typical growth investor is less worried about valuations, if the growth expectations on offer are attractive enough. Many growth shares will trade at high price-to-earnings (P/E) multiples, incorporating future growth expectations. As a result, growth investors continually must weigh up the downside risk of chasing growth at seemingly punchy valuations and the cost of paying upfront for future growth. 

Over the course of 2019, Warhammer founder Games Workshop (LSE:GAW) entered the growth stock category as a high-quality business commanding a premium valuation. Year to date, the business has delivered a total shareholder return of 88% and now trades on a forecast P/E ratio of 24.2 versus a historical 10-year average of 14. Much of the growth is already factored into the existing price, leaving investors with little downside protection.

Is a return to value on the cards?

Value investing is centred around fundamental analysis and securing a bargain price for a sound business. The ‘Sage of Omaha’, Warren Buffett of Berkshire Hathaway is the ultimate champion of value investing. Over the years his approach has been tampered somewhat, as the qualifying criteria becomes harder to apply in the modern economy where intellectual capital is the driving force behind future growth. But I believe as growth stocks begin to fall out of favour, with lofty growth expectations factored into the price, investors will once again return to value.

Adding a dose of reality to punchy valuations…

The key is to be agile enough to use these diverse perspectives to shape our investment thesis. Wouldn’t it be smashing to buy a stock with great growth prospects, at a fair price? Enter the ‘price-to-earnings growth’ ratio (PEG). Jim Slater created this metric to tackle this exact problem. It’s a simple variant of the P/E ratio that takes into consideration the earnings growth prospects of the stock to illustrate its attractiveness.

Strong catalysts put the odds in favour of the house…

As a general rule of thumb, shares with a PEG of less than one and a half present a decent opportunity. Take a look at multi-channel gambling stalwart The Rank Group (LSE:RNK), which currently trades at a PEG of 0.5. The stock possesses some strong catalysts capable of driving an earnings upgrade, with an impressive recently embedded management team focused on acquisitions in the digital space and sensibly trimming the cost base.

Compare this to Games Workshop, trading at a PEG of 2.1. I’m much more comfortable with the risk:reward profile a lower PEG ratio offers. I’m an advocate that a blended philosophy incorporating value and growth means investors don’t have to pay over the odds for growth. 

With valuations stretching beyond historical averages and economic growth stagnating, I see a huge opportunity for investors to capitalise on unloved stocks trading at a discount. We might not be able to find traditional ‘moat’ companies at as deep a discount as Mr. Buffett once did, but opportunities such as the Rank Group have merit as we move into 2020.

The post How I’d profit from UK shares in 2020 appeared first on The Motley Fool UK.

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Dexter Burt has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The fallout of this market overreaction has seen the share price of Imperial Brands (LSE: IMB) enter classic value territory. The forecast dividend yield of over 12% would ordinarily jump out as a red flag, but I’m of the opinion that the underlying free cash flow projections are supported by the business’s market position as the world’s fourth largest international tobacco company, as well as the strong volumes that come with such an enviable position.

Imperial sells around 255 billion cigarettes a year in more than 160 countries, and despite the fact that the market is shrinking, I believe the prospect of declining volumes will be more than compensated through price rises that can be absorbed by the notoriously sticky customer base. Let’s remember the barriers to entry are significant, with arguably no requirement for marketing spend.

This should alleviate any near-term concerns surrounding NGP revenues, and Imperial has become more selective with its capital investment programme in this area, until the wider political environment stabilises.

Imperial is trading at an attractive price-to-earnings (P/E) ratio of six times earnings, which is significantly below its 10-year average of 19.1x. On an absolute and relative basis, I think the business justifies further attention. Assuming zero growth in the share price, purely maintaining cash flow over the next three years will deliver an unparalleled income opportunity, with material upside on offer should the share price mean revert.

Imperial also currently trades at a discount to its peer group. With currently trading at 10.1 x earnings versus a 10-year average P/E of 16x. the sector is clearly out of favour, despite the strong underlying short- to-medium term drivers. With the global outlook remaining bleak, and frothy valuations signalling we’re approaching the peak of the record 10-year long bull run, investors should take comfort in the defensive characteristics and track record of Imperial Brands. Throughout the recession of 2008 through to the recovery, the business remained in rude health.

Much of the discount attached to Imperial’s valuation owes to the halt of the historic annual 10% dividend hikes, and will likely remain until it finds a suitable replacement for the exiting CEO Alison Cooper. But in the meantime, I struggle to see the valuation falling below this level, especially given that the income potential is well supported with a comfortable leverage and free cash flow profile from its established tobacco brands.

The post Imperial Brands trades near 52-week lows – is it a buy? appeared first on The Motley Fool UK.

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Dexter Burt has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.