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Numis downgrades French Connection following Toast disposal

Published: 11:20 16 May 2018 BST

French Connection store
In early April, French Connection agreed to sell its 75% stake in the Toast brand

City broker Numis has downgraded clothing firm French Connection Group PLC (LON:FCCN) to Add from Buy following the disposal of its Toast brand.

In a note to clients, analysts at the brokerage said: “We adjust our forecasts today to reflect this [the Toast disposal] transaction. The Toast brand operated through 3 channels - online, a network of 12 stores, and a wholesale arrangement with John Lewis - and in FY18 contributed £19.0mln of revenue and £1.5m of operating profit (FY17 £16.7mln and £1.1mln, respectively).

READ: French Connection shares pop-up as it sells stake in Toast for £23.3mln to Bestseller

They added: “Implicit within our historical estimates, we had factored-in further progress from Toast in FY19, broadly assuming revenue of c.£21mln and an operating contribution of £1.6mln. As such, accounting for the disposal, offset by some underlying offsetting efficiencies, we lower our FY19 PBT estimate from £1.5mln to £0.2mln.”

Despite the downgrade, the broker upped its target price for the group to 70p from 60p, commenting: “Overall, we view the sale of Toast as a sensible transaction for French Connection - realising a fair price for a non-core asset (12.2x historic EBITDA), streamlining the business, further improving group liquidity, and enabling an even greater focus on the French Connection brand.”

French Connection agreed to sell its 75% stake in the Toast brand to Bestseller United for £23.3mln in early April, saying it would enable to company to focus further on its core brand in its retail, wholesale and licensing businesses.

In late-morning trading, French Connection shares were down 3.2% at 60p.

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