Small-caps: French Connection out of fashion

Troubled retailer French Connection dropped 12.1 per cent to 51p after revealing disappointing Christmas results late on Friday which the company said negated its positive growth from the first half of the year and caused the gross margin to be lower than expected.

Numis retained its “buy” recommendation with a reduced target price of 80p. “Despite its struggles in the UK, French Connection’s overseas wholesale and licensing operations continue to make good progress and, given a cash-adjusted price earnings ratio of just 5.5, the valuation still looks attractive,” argued the broker.

Education company RM fell 7.1 per cent to 75p as a loss before tax in the 14 months to November of £23.4m, compared with a £23.9m profit for the preceding year, and a reduced total dividend of 3p against 6.6p in 2010, hit investor confidence.

Martyn Ratcliffe, RM’s chairman described it as a “challenging” year for the company.

Investec argued that the results showed good progress on the previously announced restructuring of the business.

“We continue to see long-term value based on the group’s leading market position and domain experience,” said the broker, which still reduced the company from “buy” to “hold”.

Electronics specialist Solid State gained 7.8 per cent to 139p after announcing it expected results for the year to March to be ahead of market expectations, primarily as a result of its shift towards higher-margin products.

In addition, Solid State said the integration of Blazepoint, the “rugged” electronics company acquired by Solid State in October 2011, was on track and should start to make a positive contribution from the start of the new financial year.

The news led WH Ireland to upgrade its earnings per share expectation by 12 per cent for the current year and 7 per cent for the next.

“Coupled with an upwards re-rating of Solid’s peer group since September, the impact on our valuation is a 28 per cent increase from 145p to 186p,” said the broker.

Lifeline Scientific fell 9.5 per cent to 151½p on Monday even as it announced results broadly in line with market expectations including revenue growth of more than 10 per cent for 2011.

However, the company also expects higher product development costs in 2012 which Seymour Pierce argues “will underpin future revenue growth, strengthen its position in emerging markets and support the development of LifePort Liver”.

Seymour Pierce retained its buy recommendation with a target price of 215p, down from 260p.

Minerals explorer Ferrex jumped 20.5 per cent to 2½p after announcing it expected two of its projects, in Togo and South Africa, to provide “maiden resources” in the next six months.

Dave Reeves, Ferrex managing director, said the company expected to complete the bankable feasibility on Nayega and the pre-feasibility study on Malelane by the end of 2012.

In contrast, Antrim Energy plunged 22.5 per cent to 70½p after revealing it was plugging and abandoning its East Fyne appraisal well in the UK central North Sea block due to disappointing results.