French Connection Share Discussion Threads

[loafofbread] 21/9/2018 21:03

Results out and no comment at all?

MA holding is the only thing keeping this up.

[runthejoules] 27/8/2018 03:00

Thanks Lom, must have missed that one. Debs: eh? You mean apart from being an unsecured creditor, as Paul mentions? Got a link?

[debsdowner] 22/8/2018 16:06

Brief point, did you know FC is one of the creditors of House of Fraser?

[lomcovaks] 22/8/2018 15:33

Joules, Paul covered the HoF situation in his daily small cap report of the 14th August.

hxxps://www.stockopedia.com/content/small-cap-value-report-tue-14-august-2018-cgs-mubl-hat-mmh-fccn-d4t4-390524/

I know he occasionally reads these boards so I do hope that he won't mind my copy and pasting the relevant section here for the interest of members who may not subscribe to the Stockopedia article. It's free and a wonderful resource for investors:-

French Connection (LON:FCCN)
Share price: 48.1p (+0.4%)
No. of shares: 96 million
Market cap: £46 million
A brief comment from me on the situation re French Connection (LON:FCCN) and its exposure to House of Fraser. This has been a known issue for some time, for people who understand the business.

FCCN has concessions (a store within a store) in department stores, including House of Fraser. These are typically small operations, with minimal staff and little stock. The way concessions work is that all sales are "banked" through House of Fraser's EPoS system. HoF then sits on the money for, I am told, about 2.5 months.

As HoF has been on the brink of going bust for some time, it was worth working out the potential liability to FCCN. Thankfully, a retail FD friend of mine worked out the figures some time ago. He reckoned there was a potential bad debt to FCCN of about £2m (probably less), if/when HoF went bust.

Since HoF went into Administration, then that crystallises the loss for FCCN and other concessions. Mike Ashley would not be paying those debts as part of his acquisition, as pre-Administration trade payables are unsecured creditors, hence usually are paid nothing in this type of insolvency.

How is the £2m estimated bad debt for FCCN worked out?

Estimated 40 concession sites within HoF stores.

Estimated annual turnover per concession of £200k

Giving £8m estimated annual revenues for FCCN from its HoF concessions.

Assume the bad debt is perhaps 3 months takings, arriving at an estimate of £2m bad debt for FCCN.

That's not material, since FCCN has a market cap about £46m, and has substantial net cash - so it can afford to write off a £2m bad debt without any consequences.

FCCN will also have to write-off fixtures & fittings related to its HoF concessions, or at least the ones that are to be closed. This again will not be material, and is non-cash, so not a problem.

The inventories within HoF stores remain FCCN's property, and if necessary can be moved to other FCCN sites, so there should not be any write-offs relating to inventories.

Going forwards, this might prove a nice opportunity for FCCN to accelerate the reduction of its heavily loss-making retail division. So I feel that, once the dust has settled, the market might actually see this as a positive.

To reiterate, the sooner the FCCN retail stores are closed, the better, as they lose money hand over fist! The value in the business is the profitable wholesale & brand licensing divisions. It amazes me that this is so obvious, yet "the market" seems oblivious to it.

There was a takeover approach last year, which must have been serious, since the board apparently spent several months assessing it & allowed the potential acquirer to do due diligence. It's only a matter of time before the business is sold, because the founder/chairman is into his 70's now, and must be looking for an eventual exit (otherwise he wouldn't have engaged with the potential acquirer last year).

I've worked out that FCCN has several stores which are literally black holes for cash, in terms of losses. The leases on these should soon expire. That means that profitability should make a step change upwards. That's what's interesting about this cash-rich company. The brand is still very valuable, and I'm hoping for an eventual payout here of 100-200p, on a trade sale.

This special situation is certainly one for patient investors only! I'll be insufferable when the payday does finally come, lol!

The recent share price softness, presumably on worries over HoF, looks overdone to me, so if it goes much lower, I'll be topping up. But it's already one of my biggest long positions, so maybe it's not wise to tie up too much cash in this one?

I imagine there is likely to be an RNS from FCCN very soon, detailing the cash losses due to HoF insolvency. It should also give us some detail on the non-cash write-offs (e.g. F&F), plus an update on what's happening going forwards. I imagine this is likely to say that some HoF concessions will continue, but some will be closed. They'll obviously only keep the profitable ones, and this is a nice opportunity for FCCN to re-negotiate terms with Mike Ashley, on a take it or leave it basis (giving him a taste of his own medicine!). Therefore FCCN should emerge with a more profitable concessions operation after this process has been completed. Hence I'm rather looking at this as glass half full, rather than glass half empty.

[runthejoules] 21/8/2018 21:32

Paulypilot we need your opinions please (not tips, we promise to door! :0)) Ta!

[clarea] 20/8/2018 19:47

Hi has anyone heard what the House of Fraser unpaid bill hit will be ?
Theres a report from Ernest and Young but haven't been able to find it online, Mulberry reported 3 mil hit today , Paul Scott who knows this stock well estimates 2 mil hit hopefully it might be a bit less than that but I suppose equally could be worse given I think FCCN had 40 inhouse stores in House of Fraser.

[she-ra] 11/8/2018 18:56

No the £9 million doesn't include the £13.9 million proceeds from the sale of Toast. So they will have a lot more money. The business is essentially valued very low and must be due a rerating once French Connection returns to profitability.

Mike Ashley's Sport Direct sold shares a few moths back so the market hasn't been expecting a bid from Ashley.

The drop on Friday was probably due to HoF going into administration so there will probably some small write offs. Market was probably overreacting.

[orange1] 11/8/2018 13:49

Could be a clumsy seller or an insider but it is still a coincidence that it happened on the day Ashley was in the news.

[clarea] 11/8/2018 13:07

Maybe but I think he already has roughly a quarter of the stock plus there is just over 9 mil cash on the balance sheet I'm not sure if that includes the money fro the sale of Toast or not.

Gven market cap is 45 mil roughly to Ashley that is pocket change even less when you net out the cash on the balance sheet.

Volume was nearly five times the norm so it might be a clumsy seller wanting out or someone holding a fair bit of stock has got wind trading isn't as good as expected/

[orange1] 11/8/2018 10:12

More likely the fact that JD Sports bought House of Fraser leading to the perception that they are not intent on increasing their stake in/buying out French Connection any time soon.

[clarea] 11/8/2018 07:21

Hi anyone any views on recent share price weakness, I can't find any gossip or rns to give an idea. The only thing I can think of is the fallout from House of Fraser being the latest retailer to be on the skids has had a knock on effect.
Any others views/thoughts welcomed.

[tiswas] 23/5/2018 17:11

Anyone go? Must have been pretty downbeat going by the sp!

[ali47fish] 22/5/2018 10:28

will the agm tomorrow come with an update anyone

[she-ra] 16/5/2018 15:21

Yes but brokers usually try and please their clients. Is this pleasing their client? And who is the client? French Connection Plc or Stephen Marks?

[kenmitch] 16/5/2018 14:08

Take broker buy/sell or whatever advice with a pinch of salt. They are wrong more often than right. Anyway investors can’t ADD without buying, so it is meaningless. Ditto upgrades from sell to reduce. Paul Scott comment is far more useful than broker advice.

[she-ra] 16/5/2018 10:00

Very odd house broker Numis downgrading French Connection to 'add'. Its like they're trying to stop the upward momentum. Its not justified. Something stinks.

I've seen house brokers downgrading their companies shares before only for MBO offers to follow.

[she-ra] 03/5/2018 16:20

Whoever was buying up Mike Ashley's shares yesterday were willing to pay a premium at 60p. I think French Connection will probably have attracted Chinese interest.

[clocktower] 03/5/2018 11:20

Reduction in stake, wonder if Mike is happy to take profits and is saying my stake is for sale to anyone that might put in an offer for the company.

[mmc71] 30/4/2018 08:38

DEB is an entirely different kettle of fish. Wouldn't surprise me if they go down the CVA route which will leave existing shareholders heavily diluted.

[ny boy] 29/4/2018 08:17

Doubled here, I am expecting the same from Debenhams (DEB) soon, which has started to turn the corner and Uncle Mike has increased his stake to around 29% recently.

Retail sector in play for recovery, just need a decent spell of weather, which is due soon, along with boost from Royal Baby birth and we'll be on our way imho.

[rjmahan] 27/4/2018 17:19

No bid i think, Mentioned by Paul Scott

[she-ra] 27/4/2018 15:01

srpactive - That was yesterday.

[srpactive] 27/4/2018 14:57

I would have thought it is confirmation the sale
of Toast has been voted through, dyor.

active

[mmc71] 27/4/2018 14:32

No bid announced. Just speculation based on today's price action. Let's hope one does come though!