Small Cap Value Report (6 Oct 2015) - SGI, WTM, SRT, AVON, SIV

Tuesday, Oct 06 2015 by

Good morning!

In case you missed it, I did a write up on Waterman (LON:WTM) late yesterday. Looks a good turnaround situation, with further upside I think. My report is here, Waterman is right at the end. Also, am talking to management shortly, so may update on any key points from today's call.

Stanley Gibbons (LON:SGI)

Share price: 104.5p (down 27% today)
No. shares: 47.1m
Market cap: £49.2m

(at the time of writing, I hold a long position in this share)

Profit warning - oh dear, it's another profit warning, following hot on the heels of a previous warning on 23 Sep 2015. It might be useful to tabulate the contents of the two profit warnings, to see how they compare. Let's see if this works!

Update dated23 Sep 20156 Oct 2015
H1/H2 splitExpecting "materially higher revenues & profits" in H2 than H1"The Board expects that the Company will deliver materially higher revenue and profit in the second half of the financial year."
High value sales & H1 resultsUncertain whether these will complete by 30 Sep 2015. Material impact on H1 results if they don'tSome completed in September. H1 sales similar to LY, despite acquisitions. Profits expected to be "substantially below" H1 LY
Full year expectationsStill expect to meet full year market forecasts for y/e 31 Mar 2016On the basis of the performance in the first half, the Board now believes that, as a result of the weakness being experienced in our Asian operations and the continued illiquidity in high value stock items, it is unlikely that the Group will achieve the market forecast for the full year.
Online performanceDouble-digit growth in total online sales. But new Marketplace is not performing well, being tweaked. Won't spend on marketing until response improves"opportunity to materially grow shareholder value through the continued implementation of our online Marketplace and global auction business remains a positive proposition."
Cost savingsAnnualised savings of £1.4m expected from integrating Noble Investments, and Mallett"will benefit from a reduced fixed cost base and better cross selling of products and services across our customer base in the second half."

Good, I'm pleased with that table - worth doing, as it contrasts the deterioration in outlook from the update only 2 weeks ago. Clearly they've failed to close the high value sales needed…

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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 »

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Waterman Group plc (Waterman) is a United Kingdom-based holding company that offers a range of engineering and environmental services. The Company, through its subsidiaries, is engaged in the provision of design services and advice in the fields of civil, structural, mechanical and electrical engineering together with environmental, and health and safety consultancy. Its segments include Property, and Infrastructure & Environment. The Property segment consists of the United Kingdom structures and building services consulting businesses, which are involved in development projects both in public and private sectors. In addition, this segment includes its overseas business in Australia, Ireland and Poland. The Infrastructure & Environment segment comprises Waterman's civil, transportation and environmental consulting business, which trades as infrastructure and environment consulting and Waterman's highways and transportation outsourcing business, which trades as Waterman Aspen. more »

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SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

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

42 Comments on this Article show/hide all

Bouvier 6th Oct '15 23 of 42

The headline PER for ST Ives (LON:SIV) (LON:SIV) might be 9.6 but like last year there is a big difference between the underlying profit (GDP 33m) and reported profit (GDP 8.7m). This concerns me as it seems that too many companies hide costs in exceptionals when these costs are really just part of the development of the business..

The largest item in their non-underlying costs is amortisation of acquired intangibles which comes to GDP 7.827m . I am not an accountant but this seems wrong because surely the cost of acquiring a business should be accounted for in the underlying income statement just as the revenue and profits from that acquired business will form part of the underlying income statement. Otherwise, acquisitions appear to be for free.

They have also put an item called "Contingent consideration required to be treated as remuneration" in exceptionals and this is another GDP 6.2m . I suspect that this is another part of the price paid for acquired businesses.

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TerryHancock 6th Oct '15 24 of 42

I did comment on SGI the other day, the problem is that

- their attempts to bulk up their auction business by buying other auction houses is not working, these are owner managed businesses by and large but without the management/contacts they are not worth that much. I see the various auction catalogues for stamps ( admission time - I buy, sell and collect stamps at auction and online), you can tell straight away that the impetus has gone.

- their online business is going nowhere and is near invisible in terms of profile, there are already established players out there, and few serious or knowledgeable stamp collector actually use SGI, there are many better and cheaper auction houses out there.

- the strategy to build an alternative investment fund/market for valuable stamps is fine in theory, but stamps as an asset class are very opaque and require specialist knowledge, the market is quite fickle and as others have commented the market is slowly declining. There has been a surge in interest from China but this is now abating, partly economic but also Chinese & Asian buyers have got smarter.

I will not comment on the profit warnings or process - this has been well covered elsewhere. If I had a barge pole list this would be on it.

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Paul Scott 7th Oct '15 25 of 42


I take the points about the negatives on Stanley Gibbons (LON:SGI) , however my main point is that the share price has ALREADY hugely adjusted downwards - it has dropped by two thirds, since the start of 2015. That may, and I emphasise may, present a buying opportunity, possibly? It's worth looking anyway. I felt there was enough potential upside to dip my toe in the water today at 104.5p.

The business has been nicely profitable, and paid very good divis over quite a few years. It has a great brand. The Bal Sheet is strong, and the valuation now is only slightly above NTAV. Although the valuation of inventories is open to question.

It's definitely NOT a stock that I will buy into heavily, this is just a small position, but it's starting to look interesting in my view. To put things into perspective, I've bought a scrap today which is under 1% of my total portfolio, and it's unlikely to ever go above 2%.

I've noticed in the last few years though, that when everyone else is in an indignant frenzy about how awful things are at companies like this, that can sometimes be the best time to buy.

Great discussion though, so thanks for the input.

Regards, Paul.

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whitepjs 7th Oct '15 26 of 42

Stanley Gibbons gave a presentation at an Investors Chronicle event a couple of years ago. The main thrust of their business development appeared to be managing investments in the asset class, not simply collection for collection's sake. They were to provide 'fund' management services for rare collectibles, with much of the growth coming form China.Their main competition would therefore seem to be alternative investments, not alternative forms of youth entertainment,

This section from their website explains the investment angle:



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referencepoint 7th Oct '15 27 of 42

Anyone who thinks Stanley Gibbons is all about stamp collecting is living in the past. The days of buying 2/6d packets of stamps 'on approval' is dead as the dodo. This company has been around over 150 years and I believe will still be around long after we are all long gone. To survive they have had to diversify and they have done so. Stamps now only accounts for a proportion of their activities. In recent years they have bought up companies in other areas of collecting such as coins, autographs and antiques. Today they are really just a market for Investment Grade alternative investments.
Following the stock market crash of 2008 they have enjoyed the bull run where savvy investors have diversified their portfolio's and bought quality collectables in the same way they bought Art and Fine Wine etc
As part of their diversification activity they went 'big' on China as they "were" awash with cash and wanted to buy back their own history and culture. Stamp collecting was part of this with huge potential. However, in recent months we have seen the China slowdown and this has inevitably impacted on SG's trading results.
Consequently they are probably 'heavy' on unsold stock. However, whilst this can be a real problem in some industries and right
downs and loss of value occurs, not so with collectables. So long as they have sufficient funds to see them through the current down turn, when the market rebounds (as it inevitably will ) their stock will command even higher prices.
So I'm saying you must take a long term view with this company. The current market price is an excellent buying opportunity.

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shanklin100 7th Oct '15 28 of 42

Hi referencepoint

I cannot comment on whether their stock valuations are realistic but P/TBV of 1.08 (hopefully based on the lower of cost and historic valuations) would tend to suggest there is value to be found in SGI.

However, the contrast between the two recent trading statements, and the fact that in isolation the first of these seemed totally delusional (IMHO), do make me wonder whether management are taking a realistic view of the company's current situation.

Whilst I am prepared, generally at least, to accept the accuracy of SGI's financial statements, IMHO optimistic or vaguely positive forward-looking commentary in any RNS should probably be subject to considerable skepticism until the numbers start to back them up.

As such I currently see SGI as uninvestable. All IMHO.

Cheers, Martin

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handy 7th Oct '15 29 of 42

SRT. I note that Simon T will answer questions as part of his podcast at 7.30am Thurs 8 Oct. My concerns are
1 Management is consistently over-optimistic. Simon is a salesman.
2 I wonder if management is underestimating the strength of competition. They talk of a £200m pipeline of valid enquiries but SRT needs to be the one getting the orders.
3 As a result of optimism on the timing of US coast guard requirements, they hold 12 months stock of finished goods. The US regulations now mandate the fitting of AIS to larger vessels by 1 March 2016 so there is a reasonable chance that inventories will come down and cash go up.
4 I am uneasy about their reliance for transceiver supply on being a minor customer of the Hungarian subsidiary of a large US company.
I will comment further after the podcast.

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herbie47 7th Oct '15 30 of 42

In reply to post #107682

Sorry deleted that comment thought you meant someone else. 

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handy 7th Oct '15 31 of 42

SRT An additional comment
5 The company currently has about 50% of its business as a base load with the balance coming in large individual, intermittent contracts. It is difficult to see how the future will be different from the past ups and downs.

6  Where is the back up if something happens to ST?


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TerryHancock 7th Oct '15 32 of 42

In reply to post #107673

You are right, that form of stamp collecting and indeed other collectibles is dead, the action and money is in high value rarities, be it stamps, books, coins, antiques or whatever, but this has been the case for at least 2 decades. SGI acquisitions have given them a broader footprint but they are not the market leaders in these fields and lack the networks. Paul made the observation about inventory value, these need to be approached with great caution. You may be right but I would exercise extreme caution on balance sheet asset values here.

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dangersimpson 7th Oct '15 33 of 42

In reply to post #107691

6 Where is the back up if something happens to ST?

ST has answered this question in the past along the lines that he is one of the most replaceable staff in SRT. It is the tech staff that are the hardest to replace - but they are well renumerated, working in an exciting field and have a nice place to work - so the risk is mitigated as much as they can.

Book: Excellent Investing: How to Build a Winning Portfolio
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Edward Croft 7th Oct '15 34 of 42

In reply to post #107668

It's worth pointing out that Roland Head put in an excellent analysis of Stanley Gibbons earlier in the year which could have helped investors avoid the 63% fall since.

I'm not convinced that Stanley Gibbons' management has pulled off the difficult trick of generating value for shareholders through aggressive acquisition. The firm's view that its extensive investments are about to start delivering is at odds with the financial evidence, in my opinion. At best, I expect the promised benefits to take longer to appear than expected. At worst, they won't appear at all.

The StockRank was 22 back then and has been climbing since (now 50) as the valuation has become more attractive.  The latest momentum knock though won't help.   I like to keep my investing simple so I don't consider these kinds of situations, much as I do love stamps.


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imranawan 7th Oct '15 35 of 42

In reply to post #107706

Hi Ed

Is there a way subscribers can see a specific Stock Rank history ie. the graph you included for Stanley Gibbons (LON:SGI) in your post above.

Best wishes,

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janebolacha 7th Oct '15 36 of 42

In reply to post #107706

Ed, there's one other thing that I really do not get about the touted cornerstone of SGI's strategy of creating an exclusive online site for their very high-end collectibles, something on which they have reportedly spent some 5m pounds so far without it being yet operational (why so much ???????? that's a couple of years of profit!), it's simply that would their target customers, presumably HNW individuals, actually be sitting down after supper to look online for bargains in very rare stamps from British North Borneo or wherever or 17th century sideboards, the way the rest of us might be looking for something quite banal on eBay or Amazon? Would those individuals not mostly buy personally or through trusted agents or would the sellers not actually be going to them, in HK or Shanghai or wherever? Honestly, I just don't get it. In any case, more mundane antiques dealers seem to have created or bought perfectly acceptable and functioning websites, why do SGI seem to find it so difficult? Imo, the management ought to be responding to questions like these.

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handy 8th Oct '15 37 of 42

SRT. Prior to ST's podcast this morning, I submitted questions 2, 4, 5 from my posts 29 and 31 above but they weren't answered, so we are none the wiser on competition, continuity of supply or lumpiness of orders.

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TerryHancock 8th Oct '15 38 of 42

Just a follow up on inventory values and book value. The 2015 accounts state that 50% of turnover is on stamps and philatelic items, 70% of inventory however is philatelic items. Valuing balance sheet assets is tough at the best of times but good luck with this one!

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alterego 8th Oct '15 39 of 42

handy, perhaps I can offer some reassurance on your questions

q.2 competition - it's a common misconception that SRT has lots of competition. In fact the principle competitors are not in the same market for entire systems which is what SRT sell to governments, they tend to compete on sales of individual AIS devices. There are many makers of AIS devices and the majority of these use SRT supplied electronics or complete units badged appropriately. To my knowledge no other company has successfully sold any system which displaces SRT's offering.

q4. transceiver supply - SRT have used Flextronics for years to manufacture their circuit boards. They are indeed a very large company which adds reassurance in my eyes. I see no reason to think that they would turn away SRT's business nor suddenly collapse.

q5. revenue lumpiness - it's true that being dependent on a series of large orders would make revenue lumpy. However, the future is not necessarily going to be like the past. SRT's business model now includes recurring income from the sale of systems and satellite data. Both are at an embryonic stage but could provide substantial income in future years where revenue is based on the number of boats being monitored.

SRT has developed a wide range of products from the low cost Identifier, class B, class A receivers/tranceivers, AtoNs, base stations, GeoVS display and complete MDM systems. They are the only company able to provide AIS class B which can reliably be tracked by satellite (important if you want to see beyond the 20-30 mile range of shore based stations). Their technology is widely used by other manufacturers e.g. Raymarine or Humminbird, and meets or exceeds all relevant international standards unlike some cheap far eastern immitations.

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Mark Carter 8th Oct '15 40 of 42

Call me cynical, but I remember Software Radio Technology (LON:SRT) being touted on a Motley Fool competition 2- or 3- (4?) years ago. Nothing wrong with that, but the company seemed to be on the verge of big orders at the time.

I haven't been following the story for years, but absolutely nothing has seemed to have happened in the meantime. H1 seems a bit of a write-off. We have some kind of promise that H2 will be different (beware the "H2 weighting"), but really, all this company has ever seemed to have done is promise much, and delivered little.

At the latest full year, cash from operating activities was £1.5m, but there were investing activities of £2.1m. Most of that was for "purchase/acquisition of intangibles", whatever that means. Capitalisation of research/development, perhaps? I'm too lazy to look it up.

This company just seems like a perennial "jam tomorrow" company that just strings investors along. I feel it should have delivered /something/ concrete by now.

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alterego 9th Oct '15 41 of 42

I feel it should have delivered /something/ concrete by now.

In the last few months:
"SRT, the AIM-quoted provider of maritime domain awareness systems, is pleased to announce that it has signed a contract to supply a national AIS Maritime Domain Management (MDM) system worth approximately US$5.0 million. The contract is for the initial phase of a long term programme with additional phases expected in the future."
"SRT, the AIM-quoted provider of maritime domain awareness technologies, is pleased to announce that it has received an order for AIS Class A transceivers worth US$700,000 for deployment on Philippine fishing vessels over the next seven months."
"SRT, the AIM-quoted provider of maritime domain awareness technologies, is pleased to announce that it has received an initial order for Class A transceivers and GeoVS data management and viewing system worth US$290,000 from a national authority in the Middle East.

The country in question has been working towards implementing a project which will require up to 5,000 local vessels to fit an AIS transceiver over the next two years."

I haven't been following the story for years, 

sorry Mark but it shows.

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Mark Carter 9th Oct '15 42 of 42

In reply to post #107853

My point is, this thing should have been motoring by now. Revenues were £8.52m for 2015, lower than for 2011, which was for £9.15m. And I was under the impression that there were regulatory requirements to have their devices fitted that goes back a few years. Great news, but why have their revenues not exploded then?

I dunno, maybe it is on the cusp of greatness now, and all those RNSs will amount to something. I could be wrong. I admit that. But they seem to have been on the cusp of greatness before, and it didn't pan out.

Jam tomorrow.

It's Value Rank is 13, so it's got a lot to live up to.

Best of luck.

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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