Small Cap Value Report (23 Feb 2016) - SGI, DOTD

Tuesday, Feb 23 2016 by
55

Good morning!

ShareSoc Supper (Richmond) - 1 March

This new monthly investor event is being held a week today, Tue 1 March, a stone's throw from Richmond railway station. The company presenting is Adept Telecom - quite an interesting one.

Details here. As with all these "Mello-style" events, they're friendly & enjoyable, and well worth supporting, if you can. A good way to meet company management, and to network with other investors. There are still some places available, if you're interested.


Stanley Gibbons (LON:SGI)

Share price: 43.5p (down 32% today)
No. shares: 47.1m
Market cap: £20.5m

Funding & trading update - I last looked at Stanley Gibbons on 13 Jan 2016, when the company said it needed more funding, but was looking at alternatives to a "relatively unattractive" equity fundraising (given the discount to NAV).

Today's update indicates that they've changed their mind;

However, having considered the various alternatives, the Board is now confident that an equity raise is the most expedient and efficient method by which to raise the capital necessary. Accordingly, the Group is in the process of raising approximately £10.0 million of new equity (the "Fundraising"). The Board intends that the Fundraising will be executed in a manner that recognises the pre-emption rights of existing shareholders insofar as is possible and will make a further announcement regarding the Fundraising next week.

So a £10m fundraising, with the mkt cap now at £20.5m (at 8:12 on 23 Feb 2016 - the price may move about a fair bit today) means quite a bit of dilution, especially if investors injecting the new funds play hard ball on price - they might demand a deep discount, who knows?

The "insofar as is possible" comment regarding pre-emption rights suggests possibly an Open Offer attached to a Placing, perhaps? I doubt whether they would go to all the costs, and time, of doing a Rights Issue - a much more involved process, since it requires publishing a detailed prospectus. It sounds as if the fundraising process is well advanced, with another update next week.

Cost-cutting is underway (better late than never);

The Board has already initiated a review of the business, particularly its cost base and effective utilisation of properties and other resources. The Board has identified and begun to implement cost savings which will amount to at least £5.0 million on an annualised basis

It's rather concerning that the…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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The Stanley Gibbons Group plc is engaged in trading in collectibles; dealing in antiques and works of art, auctioneering; the development and operation of collectible Websites, philatelic publishing, mail order, retailing, and the manufacture of philatelic accessories. The Company's segments include Investments, Philatelic, Publishing and Coins & Medals. The Company's Flexible Trading Portfolio (FTP) allows users to invest in rare tangible assets. It allows users to discuss their options and objectives with one of its Investment Portfolio Managers. more »

LSE Price
2.1p
Change
 
Mkt Cap (£m)
9.0
P/E (fwd)
n/a
Yield (fwd)
n/a

dotdigital Group Plc is a United Kingdom-based company, which is engaged in providing software as a service (SaaS) and managed services to digital marketing professionals. The Company offers dotmailer, which provides e-mail and multi-channel marketing automation platform with various tools that enable marketers to create, manage, execute and evaluate various campaigns. In addition to its automation technologies, the Company also provides multi-channel marketing consultancy and services for businesses seeking to manage customer acquisition, conversion and retention. The Company also has pre-built integrations with e-commerce platforms and customer relationship management (CRM) products, such as Magento and Salesforce. dotmailer helps in using contact data to design, test and send automated campaigns. The Company's subsidiaries include dotmailer Limited, dotsearch Europe Limited and dotmailer Inc. Through its subsidiaries, it is engaged in providing Web- and e-mail-based marketing. more »

LSE Price
92.5p
Change
0.5%
Mkt Cap (£m)
275.1
P/E (fwd)
24.5
Yield (fwd)
1.0



  Is LON:SGI fundamentally strong or weak? Find out More »


17 Comments on this Article show/hide all

Mark Carter 23rd Feb '16 1 of 17

Very interesting. In the end, it seemed a case of raising equity at whatever the cost, or bankruptcy.

Huge management failure.

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lucien2k 23rd Feb '16 2 of 17
3

Could the low tax rate be because of patent box? https://en.wikipedia.org/wiki/Patent_Box

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Paul Scott 23rd Feb '16 3 of 17
1

In reply to post #122093

Hi lucien2k,

I couldn't leave it hanging, so I have updated the article above, with a full explanation of the low tax charge. It's as you thought - R&D tax credits.

I hope that system remains in place forever, as of course it is enhancing the value of shares like dotDigital (LON:DOTD) by about 10%, by boosting earnings (and cashflow). It's an amazingly generous system really, when coupled with an already very low Corp Tax rate compared with other countries.

Regards, Paul.

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gus 1065 23rd Feb '16 4 of 17
6

Re. Stanley Gibbons (LON:SGI), as an ex-banker, I only twice had to deal with the unscheduled resignation of an auditor. In one case it was down to a disagreement on a conflict of interest (the auditor's M&A team were trying to get a mandate to advise on a takeover of the client!). In the other it was down to systemic fraud throughout the company (that the auditor had missed on at least three previous audits) relating to the valuation of stocks and the failed circularisation of trade receivables. Neither went well, and in the latter case it ended with the company going bust and the Directors going to jail (and yes, the bankers lost a load of money and everyone ended up litigating the auditors). Major red flag and well deserved barge pole status. Good luck to anyone still involved.

Gus.

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lucien2k 23rd Feb '16 5 of 17
2

In reply to post #122096

We have some great schemes for small businesses/investors in the UK, SEIS/EIS is also very generous for encouraging investment/minimising losses.

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c038644 23rd Feb '16 6 of 17
1

Did anyone else notice a strange trade on DOTD yesterday. At 12:42 someone bought a few shares at 68 odd pence. The Stockpedia valuation jumped 42% for a short time, I thought it must be an error but I checked another account which agreed. I've never seen anything like this before, can anyone throw any light onto what happened?

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Ramridge 23rd Feb '16 7 of 17
2

In reply to post #122099

Gus. I have to say that I have never come across before about an auditor openly resigning because of risks and uncertainties they are unwilling to accept. They normally give a lame excuse so as not to upset the company's management.
What I read into this is either the company was unwilling to provide them all the info they requested, or their audit was restricted to only parts of the group, thus allowing the possibility of cooking the books.
In any event a basket case.

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Nicowilson 23rd Feb '16 8 of 17

The change of auditors isn't, perhaps, as much as a red flag is it might first seem. The current firm are Nexia Smith & Williamson Audit Limited and are being replaced by BDO. As Paul say, BDO are a medium sized and well known firm. They have around 20 offices. Nexia Smith & Williamson Audit Limited are much smaller firm with 5 offices.

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JohnEustace 23rd Feb '16 9 of 17
2

In reply to post #122117

It's a huge red flag for me. I would imagine this change is imposed by the creditors. I would want a respected auditor looking at things if I was lending them money.
Paul says the downside here is unknown - I would say it's pretty simple. As I write the shares are at 42.7p, so the potential downside is 42.7p per share plus dealing costs.

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SmallCappy 23rd Feb '16 10 of 17
3

I dislike marketing firms. And one that can come up with bollox like this

"notably higher client lifetime values."

is just taking the piss.

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Brackendale 23rd Feb '16 11 of 17
1

SGI Stanley Gibbons - a very convincing case for avoiding above and in the comments - is there any bull case on this one at all? Does anyone see any positive potential?

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Jeremy Caton 23rd Feb '16 12 of 17
3

I think the audit problem at SGI could be stock valuation.The company has around £55m in stock;around half of which is tied up in very high value stamp rarities,incredibly SGI seems to make the bulk of its sales & the larger part of its total profit from sales of these items to about a dozen collectors based in China;who appear to be presently not buying!
Its debt funded purchase of Mallett seems to be performing poorly,the antique furniture market is difficult & SGI generally for lower price stamp & collectable items seems to face heavy competition from ebay traders & the like.Apart from which it has huge overheads and stamp collecting & perhaps coin collecting seems to be in decline.

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ken lowes 23rd Feb '16 13 of 17
2

But SGI can't go down, what about all those individuals who bought into the fantastic value creators that are advertised in the Telegraph? Who is going to value the tulips - black one's, I believe they were! Not to mention the portfolio's of massive wealth creation!!! If it were onshore it would have been closed down years ago. HI Ho what goes around comes around.

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Beginner 23rd Feb '16 14 of 17
1

Just thought I would congratulate you on the new photo. What a handsome chap you are!

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handy 24th Feb '16 15 of 17
1

Dotdigital Balance Sheet. I agree that capitalised R & D is not significant in this period but the total has built up to £3.6m in the balance sheet, which represents the amount by which historical profits have been overstated.

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herbie47 26th Feb '16 16 of 17
1

Re: dotDigital (LON:DOTD), surprised no one has mentioned the large directors shares sales last November when over 16m shares were sold, that for me was a signal to take profits.

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herbie47 1st Mar '16 17 of 17

Re; Stanley Gibbons (LON:SGI) something seems to be going on, Henderson now have over 17% of the shares and Richard Griffiths has increased his holding to 7.8%, any views on this?

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 Are LON:SGI's fundamentals sound as an investment? Find out More »



About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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