French connection (30p and 2.0% of JIC portfolio) I have bought anew holding in French Connection this morning.

I have to admit that this is based more on a hunch that expectations are now so low that any improvement in trading could have a decent impact on the share price and that the downside is to some extent protected by the valuation. As at 15th May trading statement it had £15.7m cash on the balance sheet compared to £10.4 million at the same stage last year. Its year end, (31st January), cash level tends to be higher; Jan 2013, £28.5m, Jan 2012, £34.2m, Jan 2011, £34.1m, Jan 2010 £35.7m and Jan 2009, £38.4m. The market capitalisation of the Company is currently £27.3m most of which is made up of cash!


Expectations for the year ending January 2014 are low with forecasts of losses of 6.0p per share. Sales are forecast at around £200m, so if it can improve sales and its gross and net margins, there is scope for upside to forecasts. Now I am no fashion guru so I defer to Paul Scott who writing in his blog on Stockopedia on June 7th said “on reviewing their website, the current season ladies wear stock is absolutely excellent - really classic, elegant designs”. He went on to observe that, “I noticed from their website that the Autumn/Winter 2013/14 preview pages show markedly lower price points. This has been a long-standing criticism of French Connection, that their prices are just far too high.” – You can see more of his report at: http://www.stockopedia.com/content/small-cap-value-report-7-jun-qpp-ple-hrn-kcom-trt-fccn-73922/#sthash.HA73FcBD.dpuf


The May 15th trading statement was not altogether bad with it saying “Trading in the period in our UK/Europe retail business is broadly flat on a like-for-like basis on last year. In line with the market generally we saw a strong performance in the early weeks of the year which softened through March but has improved again recently.”


Conclusion; French Connection has been a perennial disappointer but in my opinion the share price reflects this and should trading start to improve, helped by both a better market background as well as its own initiatives, there could be scope for substantial upside. The next trading statement is due on 9th August when it will report on the 6months to 31st July. As this is probably a more risky investment than some of…

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