Small Cap Value Report (11 Mar 2016) - SGI, TPOP, CMBN

11th Mar '16 by Paul Scott

35 comments 22886 reads

Good afternoon!

Something funny has happened with the formatting of today's article. Please bear with me, as I try to resolve this problem.

I'm walking wounded today, after a most convivial time was had last night - every 3 months I get together with my best investing friends, and we have a fascinating afternoon swapping share ideas & experiences, followed by a lovely meal, accompanied with copious wine. Not good on a school night. So I'm in the mood for a good rant, and won't be taking any prisoners.

Stanley Gibbons (LON:SGI)

Share price: 22.5p (down 39.6% today)
No. shares: 47.1m
Market cap: £ 10.6m (pre-dilution)

Funding update - delays in fundraisings are ALWAYS bad news. ALWAYS. It means they're struggling to raise fresh money, and the buyers will usually demand a deep discount. I've been involved in distressed fundraisings before, and the way they work is that the key Institutions just name their price. Existing holders get shafted.

SGI has been such a well-publicised train wreck, that there's really no excuse for PIs holding this share, other than obstinacy, or sheer stupidity.

As with any small cap, Institutions are high & dry, with (usually) inadequate liquidity to get out of a significant shareholding, but we small private investors have the wonderful advantage of being able to sell up at any point. So it stuns me that people refuse to admit to their mistakes, and continue holding a share that is very obviously in the process of collapsing in value.

Nobody likes a smart-arse, but I couldn't have been more stark in my warnings about this share here on 13 Jan 2016 when things were so bad that SGI went on the Bargepole List at 59.5p, again here on 23 Feb 2016 at 43.5p, and most recently here on 4 Mar 2016 when I speculated that a discounted fundraising as low as 20-25p was probably imminent.

It's even worse than that! There is so little appetite for a fundraising, that today the company announces that the emergency fundraising (to bail out the bank, again) will be at just 10p! That values the existing equity (47.1m shares) at just £4.7m. That's probably £4.7m too much. Personally I would only have put in fresh money for a pre-pack Administration.

Further to the announcement made on 4 March 2016, the Group confirms that it is…

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rhomboid1

13th Mar '16

Sorry Paul I inadvertently gave your rant a thumb down whilst trying to approve its sentiments!

I was reading Terry Smith in a collection of his articles and he alluded to IBM having a 2 billion dollar error on its balance sheet that eluded all other analysts , including possibly those at Berkshire Hathaway that was just becoming IBMs largest shareholder!

Enjoy your weekend

tomomo

Mark Carter

When I worked as a trainee accountant, I always insisted on getting everything down to the last penny. There was another guy who started at roughly the same time as me, and he was willing to let the odd few pennies slip by. Consequently, he was faster than me.

And I think appreciated by the firm more.

I noticed that an Stanley Gibbons (LON:SGI) director bought £52k worth of shares in April 2015 at 238p. In retrospect, it all looks a bit of a PR exercise.

Having said that, I have occasionally bought on directors purchases, and generally done quite well out of them. I think that part of the key to it is to retain a healthy scepticism about director purchases, and buy into situations which you think are obviously cheap, and where directors show obvious confidence. I'd be looking to something in the region of at least £100k.

xcity

MA does appear to be a very talented retailer, but the problem for SPD is that he also appears happy to be self-indulgent and make impulsive decisions. Mostly, it seems, they have paid off for SPD but they could also go very wrong. So there's a double reason for the shares to be at a discount to its peers - the fact that many investors won't invest in a company managed by MA and the fact that the risks of things going wrong are higher. So, the shares are quite likely to fall heavily if there's any hint of disappointment as people try to pass the parcel. A third, more conventional, reason is that it is a bit of a hotchpotch, and it is not clear how successful any successor would be in managing or rationalising the business.

gus 1065

14th Mar '16

Details of Stanley Gibbons (LON:SGI) fundraising RNS. Increased to £13m and fully underwritten by Finncap. Some element of rights pre emotion to existing shareholders.

http://www.investegate.co.uk/stanley-gibbons-grp--sgi-/rns/fundraising-and-notice-of-egm/201603140700089191R/

Gus.

Tortoise investor

Re TPOP I am a customer and I am fairly impressed despite teething problems it had to begin with. It is unbelievably cheap - I pay £11.99 a month for 6000 minutes, unlimited texts, and 6GB of data. No other phone company can touch that. The downsides are they do not currently offer new phones, only SIM-only contracts, which will limit their customer base. However, there seem to be fewer innovations with new phones so more people (like me) are probably happy with their phone of 2+ years but just want a cheaper contract.

Whether or not it's a good investment is a different Q and I haven't done the research, but I post the above for interest and background on its service. I see the market cap is only £20m now which doesn't sound particularly high if it was growing quickly (which I am not sure it is) but I also don't know what it's profit margins are like given the deals are so cheap. Also, at some stage in the next 2+ years I will probably need/want a new phone at which point I can't continue to TPOP. High customer turnover may therefore be a feature and a problem of their business model.

Chet01

Was just wondering whether you've shorted many on your bargepole-list as you would be a zillionaire by now if you had.

Ramridge

Hi Paul -

"Compare & contrast that with women's shoes, which are designed to lift up and tilt them forwards, thus projecting bottoms & boobs outwards, accentuating the curvature, and hence sexual desirability of their profile."

Well, if someone can design shoes for men that turn beery stomachs into flat six-packs, firm up the derriere and accentuate the manhood part, believe me I would be first in the queue.

Brackendale

Hello Gus,
I am a late reading all this but this is a really fascinating one to watch, and I am of a similar opinion. Seems to me the problems are in how the management has handled expansion, debt and cash control, not the two key things people have been saying (1. that people don't want stamps anymore, especially China, and 2. that the inventory is valued by SGI and is therefore probably overstated).
I phoned round stamp dealers a few weeks ago and they were all telling me that Chinese demand was never huge, that the industry itself is in fine health, that the SGI brands are very strong and in their view the problems were more about management cock ups.
What if the inventory IS fairly valued (and by the way no-one doubted this until the share price crashed)? In that case, as you say, there is significant value there. And by its nature it does not spoil or lose value over time (quite the opposite). So I think it is interesting. And incidentally, several bits of the business are doing well.
Having said all that, I agree with many of Paul's points above, and the proof of the pudding seems to be the way they have raised money - really badly done.

Hi Brackendale - I have no interest in Stanley Gibbons (LON:SGI) but after reading your note and doing a fag-packet calc. I come up with the following:
- current Book Value = £82m
- current Tangible Book Value = £43m
- current TBV less say 50% of the value of inventory = £15.5m

And the market value after today's drop in sp = £8.5m

So if you are right and the inventory is not inflated this is a really good opportunity. And even if you are partially right, with a 50% haircut of the inventory, it still looks a good opportunity. Only if I can trust the management not to drive this company straight into a river.

Worth a small punt? Maybe. I will sleep on it.

TerryHancock

I previously commented on Stanley Gibbons last year pointing out that they had gone on an ill thought out acquisition binge using debt and that NTA's were highly suspect at best - even though several commentators were keen to do the maths assuming that stock was correctly valued (it is not). I buy and sell stamps at auction, the market at the top end is fine, but trying to sell stamps as an alternative investment to non philatelists was always going to end in tears as was the acquisition of multiple auction houses where there is no IP and the brand and value does not transfer on purchase. Poor management, pure and simple, as is so often the case. This has been on my barge pole list for about 3 years despite the hype in the Investors Chronicle. I will stop now, Paul is clearly on the warpath today!

FREng

15th Mar '16

Where are the latest SCVPs? 11 March is the most recent that I can find!

Re Stanley Gibbons (LON:SGI) On reflection I am staying out. This is no longer in the realm of rational behaviour.

Wol

Thanks Brackendale
Your analysis on SGI looks spot on. How many boards of directors will do a "Mea Culpa" when they can blame market conditions. SGI have run out of money because:
* they have spent a lot of money on a (so far unsuccessful) development of an online stamp trading platform
* they have gone on an acquisition spree, buying up companies that trade in collectives and antiques and, in the process, running up debts
* buying up large collections of stamps that cannot be sold quickly enough
So are these small bits of paper inherently without worth? Yes, of course. Stamps are only worth what people are willing to pay for them. How different is that from share certificates - inherently worthless except for what people are willing to pay for them plus the future dividend streams that may dry up at any time.
Worth a punt?
* yes, because the underlying market for rare stamps is still there, which makes the assets saleable, though perhaps not quickly
* no, until the large institutional investors develop some cojones and get rid of the board of directors
* not until the share price drops closer to the placing price

Jeremy Rea

16th Mar '16

That seems to be the most recent one Paul has done.

garkum01

21st Mar '16

You said it straight paul, the directors on LTIPs are stealing the company and being expected to be paid twice
anyway the vislink rougues had their comeuppance with the share price diving. Note, I am an ex-holder.

5th Apr '16

Re. Stanley Gibbons (LON:SGI), the company has now completed its £13m placing and the new director has come on board with a view to shaking down the recent acquisitions and hopefully applying a bit of financial discipline to the ongoing business. The RNS suggests the placing was 220% subscribed which is a pretty good vote of confidence (desperation if you're a cynic). Share price seems to be levelling out at about 15p, i.e. still a 50% premium to the placement price.

Not sure whether still too early to re-visit but maybe worth watching as a potential recovery play, especially if there is some visibility provided on the liquidation value of the inventory.

Gus.

8th Apr '16

A series of RNS this week disclose that Hendersons fund management and Richard Griffiths have increased their combined stake in Stanley Gibbons (LON:SGI) to something like 43%. Not clear how much was done through the recent placement (presumably most of it looking at daily trading volumes) and how much through open market purchases. Likewise not clear if they're acting in concert or not - tho' at 43% you would expect the Takeover Panel to have an interest if they are. Either way, the share price has been edging up to about 18p offered. Worst case, there are now a couple of big ticket parties with an interest in shaking Stanley Gibbons (LON:SGI) down; best case maybe a public to private bid in the offing? Watching with interest and now have taken a small stake.

Gus.

Maybe on reflection, worst case is a big overhang of placement shares with brokers and these two parties that will continually flood the market on any rise! We'll see

24th May '16

RNS this morning to the effect that Stanley Gibbons (LON:SGI) is selling its Mayfair premises and has sub-let a part of its NY office as well as a new NED appointment from its principal shareholder Hendersons. Proceeds being applied to reduce debt. Relatively small numbers but in the context of a bombed out market cap of £25m a good start to the rationalisation process. Still awaiting visibility on the realisable value of the substantial inventory.

http://www.investegate.co.uk/stanley-gibbons-grp--sgi-/rns/sale-of-premises---board-appointments/201605240700120680Z/

Gus.

Small Cap Value Report (11 Mar 2016) - SGI, TPOP, CMBN

Stanley Gibbons (LON:SGI)

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Paul Scott

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