Good morning!

Some announcements I've noticed today:

Putting the pen down at 11.20 AM, as I have to go and look at the house I'm about to buy. I didn't cover Sumo (LON:SUMO) or Burberry (LON:BRBY) (in which I have a long position). If I'm not back too late, I may add an extra section or two. Thanks for your understanding!



Ted Baker (LON:TED)

  • Share price: 319p (pre-market)
  • No. of shares: 44.6 million
  • Market cap: £142 million

Update on independent review of inventory

Shocking news, although less shocking for those who run a mile at the first sight of accounting problems:

The Deloitte review has now largely concluded and Ted Baker expects to report that the value of inventory held on the Group's balance sheet at 26th January 2019 was overstated by £58m. This is materially higher than the £20-25m preliminary assessment announced on 2nd December 2019. 

We've covered this share on numerous occasions in recent months - see the archives.

Both Paul and I tend to dramatically write down our valuation of companies as soon as accounting problems are revealed.

For me, it's a matter of trust: I can either trust the accounts, or I can't. If I can't trust them, I don't bother going any further. This lesson was learned during the period of Chinese frauds on AIM.

Paul wrote on December 10 in relation to TED:

I suspect that more, possibly deeper, inventories write-downs could be in the pipeline. 

On December 2, when the inventory issues were revealed for the first time, I wrote;

Investors need to be wary of:

  • Early estimates being too optimistic.
  • Other accounting problems being discovered, after a more thorough investigation ("there's never just one cockroach in the kitchen").
  • Accounting problems being indicative of wider ethical problems in a company.
  • The company being unable to generate the expected level of profitability, when it starts telling the truth about its finances.

It wouldn't surprise me if all of the above four issues apply to…

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