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Just bought 6% portfolio weight in Stanley Gibbons (SGI.L) – Stamp / Coin / Antique dealer.

Stock has fallen from £2.80 at the beginning of 2015 to 17p now.

Only a quick post as this idea has been quite well covered in the Investor’s Chronicle by Simon Thompson and others.

So SGI has a current market cap of about £31m.

In 2013 it bought Noble Group – a coins dealer for £32.5m, since then they sold Noble’s freehold property worth £4.5m, assuming no further value destruction this gives a value of £28m.

They bought Mallet Group – an antiques dealer for £8.6m and Murray Payne for £1m.

Assuming their management are grossly incompetent and they destroy / can only realise half the value of these companies this gets us to £18.8m.

They recently raised £13m cash – to pay down debt mostly.

They also claim to hold £54m inventory – stamps / coins / other,  It wouldn’t be entirely fair to include all this as some will have been counted in the assets behind their acquisitions.  SGI say this is valued at the lower of cost or net realisable value.  If we assume half of this again is SGI (non acquisition) related, rather than acquisition related – that gives £45.8m – or a 50% profit from here.  It should also be remembered that in theory the market price of this inventory could possibly be much higher than cost.  The difficulty with this is that stamps are not a liquid investment so it will take several years of sales to clear SGI’s inventory – as the market value is much higher than the book value (maybe)…  I have heard estimates which put the market value of SGI’s inventory being double what it is in the books or more but this is all very much a guess.

They have gone a bit nuts buying inventory – stamps held went from c20m in 2014 to £32.5m in 2015, while sales went down although this could be a cause of the rise in inventory.

Splitting SGI into what it paid for businesses + inventory is one way to look at it…

Another is to look at the brands which are strong in stamp collection – even on Ebay auctions Stanley Gibbons catalogue numbers are being used.  There is opportunity to grow here.  Developing their own auctions are another opportunity – I have seen £150k stamps advertised on e-bay – but would you really want to risk that sort of money there ?

Even in an e-commerce world there is space for legitimate, kosher auction houses and proper dealers.  Should be worth at least something – particularly in markets where provenance and authenticity are key.

A different way of viewing this is to look at the underlying segments…  Coin dealing is making good money – £3m to 31 March 2015 and looking to be more this year.  Its likely that even if the other segments are weak this can be valued at (say) 10X earnings and get sold to cover the value of the rest of the group.

The risk on this is the balance sheet – even with the placement having raised £10m I recon total money owed less receivables is still over £10m which is a bit steep for the group but I think it can be turned round.

Shares are owned by Henderson 29.16% and Richard Griffiths – 13.97%.  I find this reassuring.  Its a heavy position from Henderson – if they bought more they would need to make an offer for the whole company.  Griffiths is a well known small cap pro investor.

To some extent this is reliant upon the quality of the auditor – this is a cause for concern as it is Nexia, Smith and Williamson.  Hardly a well known name.

I am hopeful the level of value on offer here will attract a management buy out or some other offer for the company, its also possible trading could improve, as ever, time will tell…

 

EDIT 04/07/2016 – Got out of this one – I just dont feel comfortable given share price move so am exiting/ -36%.

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