French Connection Share Discussion Threads

[profdoc] 31/3/2015 16:02

I bought into FCCN in July 2013 at 30.47p per share when the MCap was £30m.

The net current asset value was £49.9m. That was the NCAV before reducing receivables by 20% and inventory by one-third to allow for over-optimism and build in a margin of safety. But even with these adjustments the share was trading at much less than NCAV.

And so I bought, even though I thought that the chances of the managers turning around the business were less than 50:50. The pay off, if they did succeed in their revival attempt, was a multi-bagger.

I can’t complain – a 74% return - so far - is quite acceptable.

But, the question is whether I should buy some more, especially in light of their closeness to making a profit and the future potential to close stores that are not contributing.

Net current asset value


Jan 2014 Jan 2015 Jan 2015: Inv x 0.667, Rec x 0.8
Property, P. & E. 4.5 3.9 3.9
Inventory 38.5 35.5 23.7
Receivables 22.7 23.5 18.8
Cash 28.2 23.2 23.2
Non-current liabilities -0.5 -0.2 -0.2
Payables -43.1 -36.5 -36.5
Other liabilities -2.1 -1.2 -1.2
NCAV 43.7 44.3 27.8
Net asset value 56.5 56.8


Can we add some non-current asset values?

For some shares in the NCAV portfolio I will pay above the NCAV. This may be because the company has a substantial block of non-current assets with a reasonably precise and high market value, e.g. it might have offices or warehouses worth tens of millions. This would be ignored in the simple NCAV calculation, but I think good solid non-current assets ought to be added to the decision mix.

In the case of FC though, this is not worth the bother. They lease most of the shops and BS property, plant and equipment entry amounts to only a £3.9m, with some uncertainty over what is in that particular poke.

So, non-current assets do not save the day here. What about a significant trading turn-around?

I’ll discuss that tomorrow (

(Earlier newsletters on FC: 27th Oct to 3rd Nov 2014)

[hutch_pod] 18/3/2015 12:05

Paul Scott.



My opinion - the company is steadily making progress. The downside is protected by the balance sheet, and with the company now at breakeven, there are no solvency worries. Further store closures should mean that the retail losses steadily reduce further, and I think progress on wholesale and licensing has been very good in the last year.

For the patient investor, who understands that the key issue is the lease expiry of loss-making shops over the next few years, then this special situation could provide good upside, with little downside risk now. There's also potential upside from a trade sale at some point. Mr Marks won't want to carry on battling away with this business forever. It's an internationally recognised brand, that at some point could surprise people with its value, in my view.

On the downside, it's disappointing that the outlook is lacklustre for the time being for the retail division. Overall, I'm very happy to hold for another year, as I think risk/reward is better now than it has been for a while. I suspect it won't be long for the shares to regain the 60p level where they seem comfortable. Then maybe a move back up to 100p if the company is able to deliver some better trading news later this year? Along the way, the downside risk is nicely protected by the bulletproof balance sheet & cash pile.

[hutch_pod] 17/3/2015 13:56

The news has sent French Connection’s shares down 9.5p to 51.5p, although they are off the low of 49.25p. Analyst Freddie George at Cantor Fitzgerald kept his hold recommendation but cut his target price from 65p to 60p. He said:

Final results were broadly in line with market expectations but slightly behind our projections. Encouragingly, they mark the second year of improvement in trading after strategic initiatives were put in place two years ago. However, results were affected by weaker trading in UK/ Europe offset by better than expected wholesaling figures. Like for like sales weakened in the second half affected by the mild weather in September and October, difficult comparatives and going into the ‘Sale’ period after Christmas with too conservative stock levels.

In the current trading statement, the company refers to trading on the high street being challenging but, it remains encouraged on forward orders although the language is more muted than in the November 2014 trading statement.

Following these results, we are reducing our 2016 pre-tax forecast to £0.5m from £2.0m taking earnings per share down to 0.5p from 2.1p predicated on flat sales, flat gross margin and underlying costs declining by 0.5%. We are also making similar revisions to our subsequent year forecasts.

Although the Retail figures were weaker than expected partly due to one off factors, the company’s strategy, in our view, now has traction and losses have been significantly reduced over the last three years. There is more clarity on pricing architecture between the ‘good, better and best’ ranges particularly in womenswear, the accessories assortment has been strengthened, there is a better focus on the ‘best sellers’ and there has rightly been a drive to reduce markdown activity. The company also has a number of valuable brands including Toast, Great Plains and YMC, which contribute 14% of group revenues. In addition, it has a relatively strong balance sheet with group cash forecast at over £20m at January 2016.

[envirovision] 17/3/2015 08:54

31 pence in cash left. Was expecting some fireworks given there must be at the very least 20% improvement to the bottom line thanks to the stronger currency exchange.

I think the fact that's not reflected is spooking the market.

Things are clearly very tough for them.

[18bt] 17/3/2015 07:49

Results look spot on mkt forecasts - but slightly disappointed in that. Some decent figures coming out of wholesale and I'd guess will move back into profit this year. Still plenty of cash cushion. Bought in too early on this, but happy to hold.

[srpactive] 16/3/2015 21:10

Do you mean tomorrow?

tia

[undervalued companies] 16/3/2015 08:33

So news tuesday looking forward to recovery play surprised not higher might rise today pre news normally does.

[gleach23] 13/3/2015 14:31

must admit, I was expecting a little excitement in the share price towards the end of the week! :(

[srpactive] 11/3/2015 19:39

Another 100000 buy at the close.

dyor

[srpactive] 11/3/2015 09:38

Yes I have this as my retail recovery, bought more
yesterday.

I continue to buy.

dyor

regards

active

[18bt] 11/3/2015 09:34

I see the profit forecasts have drift ed up a little here - now breakeven for 2015 ye and profit for 2016.

[srpactive] 10/3/2015 12:23

Some big trades coming in here, yesterday
100 000, just now 50 000, and it was a buy
based on dummy trade.

dyor

[srpactive] 10/3/2015 10:01

Lets hope the recovery is continuing.

[gleach23] 10/3/2015 09:46

A week today according to their website - 17th March

Thanks for the prompt :)

[srpactive] 10/3/2015 09:11

Results should be very soon, the interims were positive
in my opinion, I have bought a little amount more.

dyor

[webpax] 02/3/2015 10:56

So we won't know how Christmas trading went until the 19th March! Not ideal.

I did see an ad in the Sunday Times by DFS for a French Connection branded sofa so that's an interesting angle on the licensing side.

French Connection website states: 17 March – Preliminary Announcement of Results

So is it the 17th or the 19th...?

[ashbox] 13/2/2015 07:48

Thanks gunner.....

[gunner_ni] 13/2/2015 00:17

I phoned the Co about two weeks ago to enquire about the timing of the trading statement. I was told there won't be anything till the prelims are due on the 19th Mar.

[thorne3] 12/2/2015 13:21

The figures may not be much to shout about however I suspect that the company will announce them along with details of the disposal of the Oxford St property and possibly information about a head office relocation;these latter transactions could be taking some time to finalise.

[ashbox] 12/2/2015 11:40

FCCN trading statement has been out 1st few days of Feb over the last 3 years. A bit late this year??

[she-ra] 10/2/2015 14:38

Chrisoil - what do you mean about interesting trades? There were hardly any yesterday.