Disclosure: I have no financial interest in any company mentioned.
One of the biggest investing disasters of the last year — among real businesses, not obvious joke stocks — has been stamp and collectibles dealer Stanley Gibbons Group (SGI.L).
The bad news came to a head on Monday when the firm announced a £13m placing and open offer at just 10p per share — a 50% discount to last Friday’s closing price.
Without wanting to blow my own trumpet, I’ve been consistently flagging up the risks with this stock since September 2014. The shares have fallen by 94% since then. I thought it might be worth gathering together a record of my coverage of the stock in order to show how the problems unfolded:
- 19 September 2014: Why is Stanley Gibbons giving away 7.5% to new investors?
- 26 May 2015: Stock in Focus: Stanley Gibbons [Stockopedia]
- 9 October 2015: Stanley Gibbons: 4 reasons why things could get worse
- 13 November 2015: Is Now The Right Time To Buy Stanley Gibbons Group? [Motley Fool]
- 16 November 2015: Stanley Gibbons Group: dreadful results, uncertain outlook
- 14 March 2016: Should You Take Part In £13m Rescue Deal For Stanley Gibbons Group? [Motley Fool]
My record isn’t always this good. But the signs were there. Rising debt, poor cash flow, excessive spending on acquisitions and an accumulation of potentially overvalued stock.
I think it’s this last point that has persuaded investors to sit tight when they should have bailed out. Stanley Gibbons net tangible asset value has been a cornerstone of the value investing case for the stock.
The problem is that these tangible assets are stamps, autographs, rare coins and old furniture. In other words, objects with zero intrinsic value whose market value is highly subjective.
Stanley Gibbons is known in the trade for its high catalogue prices, which many other dealers consider excessive. I suspect the firm may have started to believe its own marketing. Rare stamps won’t climb in value for ever, just like stocks don’t. The rare stamp market crashed back in the 70s/80s. I suspect prices are falling again, as the China-led boom cools.
I’m not suggesting the firm’s inventories aren’t worth anything. Clearly they are, and the fact that they are booked at cost should provide some downside protection. But the firm recently commented that it is targeting:
a return to more disciplined buying and selling strategies which should help to improve the stock profile, restore the stock turnover to more normalised levels and thereby reduce the holding costs
To me this suggests that buying and selling have become undisciplined and that the firm may be burdened with stock it’s struggling to shift.
I’m pretty sure some value will emerge from the wreckage of Stanley Gibbons. If I did hold the shares, I’d probably take part in the open offer.
As I don’t own any, I intend to wait until the placing and open offer have completed and until Stanley Gibbons has published its next set of accounts. I’ll then take a fresh look at whether this could be a good turnaround buy.
Disclaimer: This article represents the author’s personal opinion only and is not intended as investment advice. Do your own research or seek qualified professional advice before making any trading decisions.