Companies: COST    CPH    FCCN   

There are several bearish recommendations from the Panmure Gordon team this month. Clapham House, a £62 million AIM-counter trading on a lofty prospective price-to-earnings multiple of 30 times, is regarded as one to sell by analyst Douglas Jack. Speculation has it that the group has received an offer for its struggling Tootsies chain. If true, the deal would wipe out debt but wouldn’t rectify its ‘weak market position or significant overvaluation’.

Jack considers competition in the gourmet hamburger area to be ‘on the increase’ and Clapham is ‘constrained by limited corporate scale and an over-reliance on a format that has one product’.  ‘The key issue is how much upside can be engineered by corporate activity,’ writes Jack, urging investors to take profits on the basis that ‘there is insufficient upside to compensate for the potential downside risk to earnings’. 

The French connection
High street fashion chain French Connection and engineer Costain are two fully listed stocks to sell in the wake of annual results, says the broker. The retail team has halved this year’s profit forecast for French Connection to £4.5 million, with earnings reducing from 6.2p to 2.6p, following annual results to January showing declining profitability.

Panmure analysts also consider construction and engineering group Costain (see page 16) one to sell, despite the company having delivered results ahead of expectations for 2007. The broker considers that ‘uncertainty surrounding the Spanish property market and the earnings dilution from the recent rights issue has made Costain a less attractive proposition’ and suggests there is ‘more visible earnings growth elsewhere in the sector’.

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