Chris Oil Feature Article (LONG TERM HOLDINGS)
As readers of my twitter site know, French Connection Group is one of my non favourite oilies bought on the lows of 30p in 2013. However the mini fall in share price caused by US clothes weakness has been factored in and is now on an uptrend to £1.20 short term, or I believe £5 in three years.
This company would be excellent for your ISA or SIPP as a long term hold which is debt free and a safer profile than any oily with multi returns plus an income dividend stream once back in profit.
Today the French Connection brand operates in 30 countries. After losing money for many years it is gradually turning the corner as its founder Stephan Marks took back the helm again, in order to rebuild, has cleaned the business, sacked management, reinvigorated the design departments and focused on making money again.
New retail data has forecast increased consumer spend on the high street combined with the seasonal low, things will pick up before Christmas and with the interims around the corner, the company is making more progress. The beauty of this recovery play is a turnaround in operational as well as cost cutting, which I feel is well on its way, and with sales of around £200m on a market cap of £56m, it does not take a brain surgeon to tell you profit can be obtained. The first profit is forecasted this year in January 2015 although sleight, profits will substantially increase in the next three years on the back of general retail pick up combined with new fashions and branding with better designers now hired plus less discounting.
The US sales are being fixed, which are a small part of the business, and with 40% in cash Post-Christmas verses market cap let alone net asset value, now is the perfect time to gain entry.
I have read with interest people’s views of the economic outlook however I am in the view of a retail boom always comes before a bust just like one cycle after another we are at the beginning of a mass spending spree cycle possibly three or maybe five years, however this does not mean the rest of the economy will do well, but I feel the average person, or mainly women, in French Connection’s case want to spend again.
The company has impressed me with the advances on their internet site together with “click and collect” are all better than some overvalued dot internet retail stock valuing French Connection’s site at nothing. It was interesting to note ASOS even though its collapsed would value French Connection on revenue alone way above £5 using the markets same ratio, this shows how undervalued the company is and the potential.
I attended the AGM and was impressed with the upbeat approach to the issue of recovery. I was particularly interested to learn that the leases on those loss making stores causing the company to break even instead of vast profits will be all terminated over the next three years. So even if the retail boom does not happen and stays at depressed levels this share price is underwritten.
One interesting point is that the company used to pay 2.5% dividend, at this entry level you could see a dividend of 2.5% again in three years or earlier paying you 20% plus or more based on the shares bought today you go and get that from your high interest account.
I have found getting hold of the shares like gold dust due to the fact Stephen Marks founder since 1972 has a vast holding together with Schroder’s increasing their position to 12%. So do not give up keep bullying your broker to buy some despite being on the fledgling index not aim. However one day French Connection will be sold as I assume now the CEO (67) will want to retire but I have a feeling it will be £5 before then and see Mark on a mission to prove doom mongers wrong. I see the journey as a three year one but £1.20 or 90p can be achieved on positive interims near term.
Until the next time more ramblings from the castle can be seen @chrisoil