French Connection Recovery Play BUY

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As readers of my Chrisoil twitter site know, French Connection Group (LSE:FCCN) is one of my favourite multi bagger recovery plays having bought in on the lows of 30p in 2013. However game changing events are about to happen soon on full year results and Christmas profitable trading update within the next four weeks, leading to breakeven with the companies  first annual profit forecast this year end 2015.

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French Connection has been one of the best performing retail stocks in 2014 by going upmarket. Today the company operates in 30 countries. After losing money for many years it is gradually turning the corner since founder Stephan Marks 42% holder retook the helm again, in order to rebuild he has cleaned the business by reinvigorting the designs as shown by the recent autumn update with wholesales up 9% and margins improved.

The beauty of this recovery turnaround play is operational as well as cost cutting combined with no debt and high cash balance 40% i estimate of the market cap at present .  Remember the companies trading under its net asset value which i repeat has no debt,  once in profit it will achieved the normal retail sector rating  at least double to triple its net asset value rating. That means in laymans terms 100% to 200% increase in the value of its share price.

With sales around  £190m on a market cap of £53m, it does not take a brain surgeon to tell you profit can be obtained.  Another area where French Connection is making great advances with the closure programme of unprofitable stores due to the high rent upwards review. This is the main reason why there is such a vast gap between turnover and profit.  I attended the AGM last year and was impressed with the upbeat approach to the issue on lease review with all unprofitable shops terminated within the next two years leading to large increases in profit.

I read with interest (Boo) Boohoo profit warning due to Black Friday postage delays and limited click and collect distribution, which showed shoppers returning to physical retailers who have online combined with click and collect stores. To put it another way French Connections online business is in for free. I am sure if listed separately last year French Connection Online would be worth in its own right more than the entire companies value today if not more.

The retail global sector is going through a depressive time during the last 12 months although general sales are improving and one of the only firms to shine out is French Connection based on the last Autumn update for the period August to November outperformed most its competitors. Furthermore the dramatic fall in oil prices by 60% in the last six months has lead to an increased disposible consumer spend, so i forecast the next 12 months to have a general retail rally with employment wages now outstripping inflation.

Whats interesting about this company is the level of well known experts such as Paul Scott value investor with many years in the retail field invested together with City Schroders increasing its position. Not to forget our very own Clem who has written positively on (LSE:FCCN) French Connections recovery play status in the past.

Profit is expected over £1m plus in 2015 a game changing event then £7m in 2016 and multiples further out as shop closure programme is finished. For a long term holding like me once  profits start the dividend policy will begin again and a potential takeover target will add futher value. However i assume the CEO (67) will want to retire with an ambition to get back to an all time high share price of £5 before then,  make no mistake Stephan Marks is on a misson to prove doom mongers wrong.  I see the journey as a two year one but near term expect a rally to 90p region on a positive January trading update.

Chrisoil podcast discussing (LSE:FCCN) French Connection with Justin Waite and the oil price can be seen at

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Until next time more ramblings from the castle can be seen @chrisoil











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