A lot of my comments below are only findable by looking at the detailed numbers. The “spin” on these figures is bad
Strip out the acquisitions and revenue from existing operations is well down. So for the year just ended like for like revenue is down 18% from £36.4m ( = 12/15 of last year’s results £45.5m and I will use that annualised basis in all calculations below marked *) to £30.2m. Within that philatelic sales are down from £26.7m* to £23.9m down 11% and are actually 10% even below the 2012 £26.3m. Why has the core business been in such decline ?
Underlying trading profit ? FELL from £7m in the 15 months last year to £4.3m last year. Only trading profits of £4.5m from acquisitions saved the day.
They make a lot of Gross Merchandise Value GMV for online operations....but most of that is at the acquired Bloomsbury and Dreweatt ( £8.3m) and Baldwin’s ( £2.8m). How much did stamps contribute ? £1.2m at SG and £1.2m at bidstart and this is the GROSS value of stamps sold. The “turn” or fee that bidstart takes, as for EBay is TINY. Last half year it was reported that on GMV of $1.04m bidstart took commissions of $80,000 ( 7.6%). So the actual revenue to SG’s top line ? Well guessing 8% of the combined £2.4m above.......about £180,000. This is peanuts. Worse than that SG show that visitor numbers to bidstart fell by 28% ( up by 14% at SG) making a combined philatelic FALL of 18% !! and by value ? GMV at SG fell by 3% and at bidstart fell by 24%. What have they been doing with their online strategy for stamps ????? An unfair calculation would say that 2.5m visitors to bidstart spent GMV of £1.2m............or less than 40p per visitor, a very very low conversion rate.
Costs of the online push. I have written before that they have been working on this for years. The 2012 bidstart acquisition document referred to “substantial trading platform” and SG has been talking for YEARS. In 2010 they wrote “The online trading platform...will be launched in the second quarter of this year”. Five years late it is now live ( and rubbish). At what cost ? Well IT costs of £436,000 in 2010; £250,000 in 2011; £1m ( inc bidstart) in…
Hi Simonty
Interesting article. I posted similar comments at the bottom of Paul's SCVR last week. I've pasted my comment from Friday below:
I had a look at the Stanley Gibbons (LON:SGI) results this morning and they looked lacklustre to me. Whilst adjusted profits were in line with the revised broker forecasts, some of the exceptional costs which they've added back in are questionable ie. legal costs on defined pension scheme which occured in 2014 as well, acquisition costs, etc. They seem to be recurring costs so seem to be underlying costs of running the business and shouldn't be excluded.
Secondly the PER looks to high based on the organic growth of the business. For example recent acquisitions contributed just over half of underlying trading profits, and the performance exc. acquisitions was poor (profit here was £4.3m compared to £5.6m in 2014 - based on an annualised basis which represents a 30% reduction in profits). Therefore one could argue the underlying business shouldn't be valued on such a high multiple?
Thirdly whilst the balance sheet looks okay, trade receivables and trade payables increased quite significantly this year. They also wrote off £0.5m of trade receivables and given the level of inventories now equates to almost half of the market cap, this would make me slightly nervous if I was a holder.
The final point I would make is the poor level of cash generation of the business both in the cashflow statement and within the Stocko reports.I appreciate the business has been making acquisitions and investing in their website but their free cashflow per share has been negative for the previous 3 years. The full year dividend also looks to have been cut, as this was projected at 7.5p compared to the FY payout of 5p.
As a result, I'm surprised the SP went up this morning. Maybe I don't understand the business fully, but based on my understanding of the financials I think the current valuation looks toppy. I take the point on board that if they achieve EPS growth for the forthcoming year the PER could be reasonable but I have my doubts whether the company can unlock the potential of the business.
Hope this provides some additional points to your analysis above.
Best wishes,
Imran. - See more at: http://www.stockopedia.com/content/small-cap-value-report-26-jun-2015-tni-tung-ess-sgi-sal-101827/#sthash.zK5BJElt.dpuf
