French Connection back in fashion

Take profits on Redrow's firm foundation; Time to close the book on debt-laden Chorion
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The Independent Online

For a guide to the top trends for spring/summer 04 you need only pop into one of French Connection's 61 UK stores. Pucci-esque bright prints? Check. Acid-bright colours? Check. Heavy on the lemon and lime? Check. Full Fifties-style skirts? Check, check, check.

The group rarely puts a foot - clad, naturally in this season's must-have patterned tights - wrong. This, it says, gives it the confidence for a concerted expansion push on all fronts: retail, wholesale and licensing, and in all countries.

Stephen Marks, the 57-year-old chairman, certainly must be doing something right for the company he founded in 1969 to achieve a 28 per cent jump in pre-tax profits. It ticks all the financial as well as all the fashion boxes.

Although it's the group's strong high street presence, helped by its even stronger advertising slogan FCUK, that leaps to mind when you think French Connection, most of its recent growth has come from its wholesale arm, which supplies the company's gear for sale in other people's stores. In the US, accounting for one-fifth of group sales, progress on the shopfloor helped the company to edge £900,000 into the black in the second half of last year. Doubling its 25 stores in the US over the next five years will help that growth to continue, but it is the opportunities posed by wholesaling to the country's department stores that should really ensure it accelerates.

Throw licensing deals for the brand into the mix - its fcuk fragrance is being launched worldwide - and you have a group that is about a lot more than just selling trendy tops to the Brits. Joint ventures and working with local partners will share the risk of opening new stores in Hong Kong, Greece, Thailand and the Philippines.

Mr Marks certainly seems happy to put his money where his mouth is: he controls 52 per cent of the group's shares. And given the stock's stellar performance since the column tipped them last year, there seems no reason not to follow his example. Buy.

Take profits on Redrow's firm foundation

Everything has been running in the right direction for Redrow, as you might imagine in a runaway housing market. The little builder, based in Flintshire on the Welsh border, sold more homes last year, at higher prices, than in 2002. It also scored better operating margins and returns on capital, putting it among the best in the industry on these important financial measures.

But the process of guiding expectations towards a more pedestrian future performance began yesterday. Those operating margins - which in part reflect the jump in valuations between Redrow buying land a few years ago, and selling the properties it has built on it - are going to contract from now on.

As house price inflation moderates towards a sustainable level (back towards the level of wage growth), Redrow is going to have to rely on building more houses to keep profits growing.

It has promised to do just that. It has one of the best- stocked land banks in the industry, so it won't be forced to buy land at inflated prices. The company is also good at finding opportunities on disused industrial land, because it has a commercial building arm, too, and can easily organise mixed-use construction projects. Although it losing money now, there is also a steel-framed pre-fabricated homes venture which Redrow hopes will make building new houses cheaper.

Redrow shares fell 8.25p to 369.5p yesterday and they have had a great run since we tipped them at 215p in late 2002. The sector is entering a more difficult phase, and it is time to trim holding. Take profits.

Time to close the book on debt-laden Chorion

Oui oui. It might be the continental exclamation of a shareholder in Chorion watching the stock double over the past year. It is also the French name for the Enid Blyton character better known as Noddy. He is currently the star turn in Chorion's portfolio of characters, which also includes Miss Marple and Poirot and, soon, the Mr Men.

Noddy is having a very exciting adventure. Make Way for Noddy, the latest cartoon series, is a staple of Five's children's programmes, while in France, Oui Oui has been such a hit that Hasbro, the toy giant, plans to distribute a range of Noddy merchandise across Europe. The show has also been sold to China, Poland and Iraq.

Meanwhile, Miss Marple will be back on telly soon, Poirot's Death on the Nile is likely to be an ITV drama for Easter, and Chorion's television revenues look secure for a few years. Investors must remember, though, that it takes hard graft to resurrect these characters: there have been repeated disappointments along the way and even now Chorion is unable to tie up a significant deal to get Noddy on air in the US. Buying the Mr Men, for about £25m in shares from the Roger Hargreaves estate, is the easy part.

Chorion's progress in 2003 has been strong, but with high debts and fickle markets, there are no guarantees on the future. We were wrong to say shares were high enough in April 2003, but they still seem too risky.

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