Small Cap Value Report (26 Nov 2014) - FCCN, HRG, CAKE, SRG

Wednesday, Nov 26 2014 by

Good morning from Las Vegas! My body clock is all over the place at the moment (arrived here yesterday afternoon), so thought I might as well write a SCVR, seeing as I'm wide awake at 3:30am local time!

I'm staying at the Vdara Hotel, in a corner suite on the 53rd floor, so am literally looking down on the Bellagio, with a spectacular panoramic view as I'm typing this. What a tacky city! All good fun though.

French Connection (LON:FCCN)

Share price: 56.5p
No. shares: 95.9m
Market Cap: £54.2m

Trading update - covering the three months to 31 Oct 2014. The market likes it, as the shares have put on about a 10% spurt this morning.

As you would expect, the exceptionally mild autumn weather has impacted sales in the problem UK/Europe retail division (which racks up big losses). Sales are down 5.7% on a like-for-like basis vs last year (for the 17 weeks to 22 Nov 2014). However, gross margin is strongly up, being 240 basis points higher.

I've done some rough calculations to ascertain how a 5.7% sales drop combines with a 2.4% increase in gross margin percentage, and I reckon it translates into a 2% drop in gross profit. So in other words, the increased gross margin offsets almost two thirds of the drop in sales, so not a bad result considering everything.

The wholesale business has performed a lot better - with a 9% increase in sales against last year, and the spring 2015 order book is described as "strong". Global licensing revenue is also referred to positively.

Net cash, at a seasonal low, is £8.7m, so I imagine that will be back up to nearer £25m by the 31 Jan 2015 year end - almost half the company's entire market cap.

With tight cost control, the company reiterates that it should meet full year guidance, which is as near as dammit to breakeven.


My opinion - I remain of the view that this is an interesting risk:reward situation. The downside is protected by the bulletproof Balance Sheet. The upside could potentially be exciting, if the turnaround develops further. The business has been stabilised, and the heavy losses made in the retail division are likely to melt away in the coming few years, as leases expire on loss-making units. So even if underlying performance doesn't improve further, just closing loss-making shops will…

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French Connection Group PLC designs and supplies branded fashion clothing and accessories for men and women. The Company operates retail stores and concessions in the United Kingdom, Europe, the United States and Canada and also operates e-commerce businesses in each of those territories. Its principal brand is French Connection, which designs, produces and distributes branded fashion clothing, accessories, such as toiletries and fragrances, shoes, watches, jewelry, eyewear, furniture and homeware through its distribution channels: retail stores, e-commerce, wholesale and licensing. Its other brands include, Great Plains and YMC. The Company operates in approximately 50 countries around the world. The Company's subsidiaries include French Connection Limited, French Connection UK Limited, French Connection (London) Limited, Contracts Limited, French Connection Group Inc., French Connection (Hong Kong) Limited, French Connection (Canada) Limited and YMC Limited. more »

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Hogg Robinson Group plc is a United Kingdom-based holding company. The Company is an international corporate services company, which provides cloud-based software to help clients in travel, expense, payments and data management. It has two core activities: Travel Management, which is analyzed into three geographic segments, including Fraedom Travel, and Technology, which includes the Fraedom Payments and Expense operations. The Company is an international business-to-business (B2B) service company. The Company has three geographical corporate travel segments: Europe, North America and Asia Pacific. The Company's subsidiaries are engaged in the holding and financing, Technology, Travel Management and Support services. The Company's subsidiaries include HRG Debtco Limited, Farnborough Limited, Hogg Robinson plc, Hogg Robinson (Travel) Limited, Hogg Robinson Money Matters Limited, Farnborough Finance (2007) Limited, Fraedom Holdings Limited, Fraedom UK Limited and Wilson Albany Limited. more »

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Patisserie Holdings PLC is a United Kingdom-based cafe and casual dining company. The Company offers cakes, pastries, snacks, meals, and hot and cold drinks across the United Kingdom. The Company's segments include Druckers, Flour Power and Philpotts. It offers products, such as coffee, dairy, fruit, packaging, cocoa and wheat items. It offers cakes in various categories, including celebration cakes, gluten free cakes and wedding cakes. The Company operates under various brands, including Druckers-Vienna Patisserie, Philpotts and Flour Power City Bakery. The Company offers a range of cakes, such as Gluten Free Flapjack, Gluten Free Chocolate Chip Muffin, Cortina, Chocolate Box, Carrot Cake, Cheesecake, Blackforest, Exotic Fruit Tart, Pecan Tart, Citron Tart, Choc Mousse, Mixed Berry Mousse, Raspberry Tart, Madame Valerie Slice, Mille-Feuille, Gluten Free Chocolate Brownie and Gluten Free Marble Cake. more »

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  Is LON:FCCN fundamentally strong or weak? Find out More »

5 Comments on this Article show/hide all

RichardK 26th Nov '14 1 of 5

I reckon your readers should send you to Monte Carlo for your next gambling splurge. Only an hour's time difference, no jet lag, no SCVR disruption, and not tacky.


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Fangorn 26th Nov '14 2 of 5

"Must admit I'm finding the excitement of the UK markets a lot more interesting than Vegas! Although I might find a poker tournament to participate in tonight."

You need to get out. Vegas is a blast,caters for all" interests" Plenty of decent restaurants, clubs etc to visit.

Have a chat with the hotel concierge, he'll hook you up with whatever spins your boat.

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DarwenLad 27th Nov '14 3 of 5

Paul, your earlier scepticism about Findel (FDL) has been born out by its latest interim result. Just when we thought that Findel had cleaned up its act it comes out with another £23.4m of exceptional items dominated by a £19m impairment of its Kleeneze business, but including £2.5m for redressing “ certain customers as a result of flaws in some legacy processes” at Express Gifts, whatever that means.

No wonder FDL’s share price collapsed by 17% today. It is well over three years since Findel’s handsomely rewarded management team launched their turnaround plan and Findel is continuing its long history of producing nasty surprises. Having flogged its profitable healthcare business for a measly £24m in March 2013 it now looks like its loss-making Kitbag sporting goods business is on the block, although let’s hope that the £70m a year business is sold for a lot more than the £20m rumoured in some press reports.

For what it is worth the Investors Chronicle’s latest verdict on Findel, issued after the latest results, is as follows:
“Findel remains on track to deliver its 7-9 per cent underlying margin target for the full year. The prospect of a Kitbag sale is also promising. With the shares still lowly rated on 8 times earnings, we're sticking with our recovery call. Buy.”

Hope you are having better luck at the Las Vegas tables than I am having with my stock picking.

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purpleski 27th Nov '14 4 of 5

Hi Paul

Have fun in LV but I have to say I agree with RichardK. Las Vegas is the bottom of my bucket list.

Re Patisserie Holdings (LON:CAKE) personally I would sample the fair first. If the expansion roll out mirrors the one at Paddington station then it is not for me. Stale cake, served in plastic bowls that you might find in a secondary school and awful coffee (I drink espresso). The one in Duke of Yorks Square(London) is better but most of the seating is outside so very seasonal but maybe I am just picky.

French Connection (LON:FCCN) good luck on this one and as you know this area well you are better placed than most to judge but so much of this mid-price fashion market seems out of control of the directors and in the hands of the fickle consumer.

Thanks for the education on the importance of balance sheet strength.

Good luck with the poker game tonight!

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Paul Scott 27th Nov '14 5 of 5

In reply to post #88109

Hi DL,

I think Findel (LON:FDL) has a ghastly business model, selling things on extended credit to people who can't afford to buy them, and it will therefore just forever lurch from a few years profits in good years, to endless restructuring & write-offs in bad years. It's a crap business. Internet competition will replace it. So I wouldn't go near Findel at ANY valuation - even put it on a PER of 2, and I wouldn't be interested, as you can't rely on the earnings being sustainable.

Just my opinion, as always, I could be wrong. Can't see the point in looking at rubbish businesses.

Also, there is the curse of Kleenezee, which Findel now owns. I lost money on whichever company owned that, years ago. Euro something. It was a pile of junk - it gave endless reasons why everything would be fine. Then it went bust.

Regards, Paul.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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