Investment Column: Ted Baker makes a name for itself

Ralph Lauren, Gucci, Armani... Ted Baker? If Ray Kelvin, founding chief executive of Ted Baker, is right, his men's casual clothing label will soon have the instant brand recognition enjoyed by these gilt-edged names.

Mr Kelvin certainly has the chutzpah associated with the world of high fashion. Not only did he float his company at 20 times earnings, above the retail sector average, but he netted almost pounds 16m from the deal. That and the fact that the company raised almost no new money has left the market wary.

Floated at 135p on 24 July, Ted Baker's shares initially soared to a high of 150.5p, but slipped 4.5p to 146p yesterday despite strong maiden interims - sales to August grew 50 per cent to pounds 8.9m with underlying profits up one-third to pounds 2.2m.

Mr Kelvin is keen to emphasise that Ted Baker is a label wholesaler, not a retailer, even though 60 per cent of its sales are from its handful of shops and concessions. Wholesaling, which grew sales by 94 per cent in the half year, means lower overheads than the average retailer and better margins.

Ted Baker enjoys 30 per cent net returns. It also means expansion abroad is less risky.

Mr Kelvin's biggest problem is convincing the market that Ted Baker has the staying power to become an international brand. Mr Kelvin is correctly creating scarcity value by strictly rationing the clothes to a handful of independent retailers.

The rich and shameless seem to appreciate Baker's unusual fabrics and colours - Tom Cruise, Jack Nicholson and Tony Blair's children are all customers. With the average price of a shirt at pounds 50, Ted Baker's position as an affordable label looks attractive too.

All that is reflected in the very good interim figures. However only a few labels will ever gain the mystique and durability of Armani, and there only time will tell. Mr Kelvin is building the brand by expanding into formal wear, women's wear and suits, but that risks diluting the name before it is established. On Charterhouse Tilney's pounds 5.6m full-year forecast, the shares are on a forward p/e ratio of 16 for 1997 and 13 next year. Undemanding at these levels, but unproven too.