The bad news this morning for holders of retailer Ted Baker (TED) is that the company has announced an independent review of its inventory. It says it has identified that the value of inventory held on its balance sheet has been overstated. It estimates that the figure is up to £25 million and that it relates to prior years. This looks like yet another audit failure (the auditors are KPMG).
The share price is down 10% today at the time of writing but it’s been falling for a long time so it’s now down well over 80% from its peak at the start of the year. Warnings about its stock holding are not new. This is what the Investors Chronicle had to say in October: “Ted Baker’s stock levels have been a cause for concern. Inventories have grown consistently in recent years, reaching a peak of 37 per cent of revenues at the full year”. For a clothing retailer to hold that much stock seems simply unreasonable. That report came after an unexpected half year loss. I suspect that even worse news may come out in due course.
On Friday an article by Simon Thompson in Investors Chronicle contained a puff for SRT Marine Systems (SRT). This made for interesting reading as I used to hold the stock – sold at 25p in 2012, price now 52p. I sold because of repeated lack of progress and overoptimistic forecasts of big deals in the pipeline. The CEO (he’s still there) seemed to be a perennial optimist and even analysts started to become wary. Revenue and profits jumped around from year to year (big profits in 2019 after losses in 2018) and the share price jumped around similarly. Simply not the kind of company I like to hold.
Has anything changed to cause Simon to tip the share? The basis is a big deal (a “game changing contract worth £31.8 million”) to sell AIS systems for marine surveillance in the Philippines. There are also other similar deals in the pipeline. This is what is says in the recently published Interim Report in which they also reported a major loss: “Most of our system discussions are confidential in nature and usually have a long gestation period due to the nature of a government turning a general idea into a real system with all the necessary regulations, budgets and approvals. Over the last few years, we have followed a very steep learning curve in respect of understanding the realities of the intricacies and complexities of the processes that each of these large contracts must complete prior to SRT being contracted. Whilst predicting timescales remains imperfect, this knowledge now enables us to more accurately characterise system opportunities with regards to their status within a customer’s process and better understand the real time window within which we would expect to be contracted and start implementing an SRT-MDA system. We hope this will reflect in an improving ability to provide market updates on the status of future system contract opportunities”.
Big projects also create big risks though, and soak up working capital. Will they be completed on time and within budget? Will the customers be satisfied and pay on time? I won’t be jumping in to follow Simon Thompson’s tip just yet. I’ll wait to see if the leopard can change its spots.
Another interesting article over the weekend was one by David Miles (Professor of Economics at Imperial College). It was headlined: “Why our rising population will bring with it a decreasing standard of living”. The article argues that with a rising population the country needs to invest more simply not just to maintain the capital asset stock but to cover the demands of the extra population – for housing and transport for example. But the higher the population growth, the less your ability to maintain assets per person unless you raise savings. But that means lower consumption, hence we become individually poorer.
Population growth is certainly a concern of mine, and likewise for many other people who live in the London area. What follows is a article I recently wrote on that subject for another organisation:
London Congestion – It’s Only Going to Get Worse
As anyone who has lived in London for more than a few years probably knows, the population of the metropolis has been rapidly rising. This has resulted in ever worse congestion not just on the roads but on public transport also. The roads are busier, rush hours have extended and London Underground cannot handle the numbers who wish to travel on some lines during peak hours. Even bus ridership has been declining as the service has declined in reliability and speed due to traffic jams.
The Greater London Authority (GLA) has published some projections of future population numbers for the capital and the conclusion can only be that life is going to get worse for Londoners over the next few years.
The current population is about 8.8 million but is forecast to grow to 10.4 million by 2041, i.e. an 18% increase. This increase is driven primarily by the number of births and declining death rates. The relatively high numbers of births in comparison with what one might expect is because London has a relatively youthful population. One can guess this is the case because of the high numbers of migration from overseas which results in a net positive international migration figure while domestic migration to/from the rest of the UK is a net negative, i.e. Londoners are being replaced by immigrants.
But population increase in London does not have to be so. The chart below shows you the trend over the last 100 years and as you can see London has only recently reached the last peak set in 1939. During the 1960s to 1990s the population fell. What changed? In that period there was a policy to reduce overcrowding in London and associated poor housing conditions by encouraging relocation of people and businesses to “new towns”. But when Ken Livingstone took power he adopted policies of encouraging more growth. His successors have continued with those policies and have promoted immigration, e.g. with Sadiq Khan’s “London is Open” policy.
Many Londoners complain about the air pollution in the London conurbation without understanding that the growth in businesses and population have directly contributed to that problem. More people means more home and office heating, more transport (mainly by HGVs and LGVs) to supply the goods they require, more emissions from cooking, and many other sources. The Mayor thinks he can solve the air pollution issues by attacking private car use and ensuring goods vehicles have lower emissions but he is grossly mistaken in that regard. The problem is simply too many people.
Building work also contributes to more emissions substantially so home and office building does not help. But the demand for new homes does not keep pace with the population growth resulting in many complaints that people have to live in cramped apartments or cannot find anywhere suitable to live at all. Likewise new public transport capacity does not keep pace with the increased demand. There is some more capacity on the Underground but only on some lines and not much while Crossrail which might have helped has been repeatedly delayed.
The economy of London is still buoyant. But all the disadvantages of overcrowding in London mean that Londoners are poorer in many ways. Indeed if Professor Miles is right, they will be cash poorer as well. Those who can move out by using long-distance commuting or relocating permanently thus leaving London to be occupied by young immigrants.
Any Mayor who had any sense would develop a new policy to discourage immigration, encourage birth control and encourage emigration to elsewhere in the UK or the Rest of the World. But I doubt Sadiq Khan will do so because a poorer population actually helps him to get elected. It’s a form of gerrymandering.
If Sadiq Khan wanted Londoners to live in a greener, pleasanter city with a better quality of life then he would change direction. But I fear only intervention by central Government will result in any change.
Go here for more details of the GLA projections of London’s population: https://data.london.gov.uk/dataset/projections-documentation
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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