Mallett Share Discussion Threads

[rainmaker] 31/1/2014 13:44

At current levels,a Warren Buffett style work out?

regards

[rainmaker] 31/1/2014 02:21

callumross 29 Jan'14 - 12:53 - 510 of 515 0 0(premium)

Rainmaker. I think you get too hung up on the benefits of a possible 10p special dividend. Why would this be positive for investors? I am a holder but all that will happen is that I will get a 10p capital payout and a corresponding 10p fall in the value of my shares when it goes ex the special dividend. The dividend by itself adds no real value to existing shareholders or offers any real incentive for investors to invest in MAE for the first time.

Hi Callum-I don't think I'm too hung up on the special dividend but as a Stockmarket Value Investor, I'm concentrating on all known facts and definite prospects of which this falls into the latter catergory.You talk of a "possible 10p special dividend" but it's a done deal expected to be completed on 21 February subject to Mallett finding a new workshop for Hatfields, their restoration business but how difficult can that be?

We're currently trading at roughly net working capital which a proxy for a quoted Company's minimum liquidation value so the (fixed asset) property sale for 19p a share is free of charge, as is their 23.75% stake in the annual Masterpiece exhibition.So IMHO at the current share you'll be getting a special dividend for which you're not paying for, in effect a free lunch.

If the Company announce, say 12p special then with a share price at 72p that's a 16.66% return with a 10p, it's 13.89% and 8p it's 11.11% and I expect the dividend to be paid within 4 months.Mallett are trading profitably with expectations of a 6.1p in earnings this year and 7.6p next so why should the share price trade below its minimum liquidation value? So we have a current situation with no discernable downside and an estimated return of capital equivalent to between 33.33% and 49.98% on an annualised basis.Lets say the deal is delayed and it takes them 6 months to pay the special dividend that's still between a 22.22% and 33.32%

However I think it gets even better than that as I should also add, since it's pertinent that the Company have said that they will return to paying an ordinary dividend "when financially prudent to do so" which IMHO we can safely interpret as paying one this year from the forecast 6.1p of earnings of perhaps some 2p a share.Anecdotal evidence has already confirmed the recovery in Mallett's cyclical markets(eg Masterpiece in 2012 and their New York sales first half of last year)added to a more than halving of their London showroom rent by relocating to Dover Street saving some £600k a year.

With all other factors being equal, expect the share price to move up by that amount on the announcement and back down again when the share price goes ex dividend,

AIMHO, DYOR

regards

[baner] 30/1/2014 09:37

What you describe is to some extent correct and the reason for Mallett being mismanaged. Not only with respect to their current affairs but certainly also re long term strategy. The old style up market antiques dealer is a dinosaur type of business and it is madness to continue as Mallett does with excessive costs and stupid prices on their supply. It is 2014, not 1914! A competent board should of course have adjusted accordingly.

[pj 1] 29/1/2014 14:29

Maybe harsh!

Until 2012 I was involved with the ''Restoration'' Industry (mainy insurance related).

Obviously French polishing, Furniture Restoration and art works came under some of our remit. It is a dying industry with little/ no new blood entering the sphere (hands on or otherwise). Living in the East Midlands I know that ALL suppliers to high net worth clients have suffered and still are since 2007/ 2008. Stock has not moved for 5 or 6 years in some cases. Previous competitors have actually in some cases formed working partnerships to reduce overheads and costs.

It is an Industry problem not specific to poor management at MAE imo.

[baner] 29/1/2014 14:17

PJ 1

you invest in "under-valued and mis-managed" companies assuming there will be a positive change in the board/management structure and that such change will enhance the returns to allow 10p to be valued at at least 10p.

with Mallett it is a mystery that the major shareholders have allowed this sad lack of performance to continue for so long. but maybe they have other reasons than earning Money for retaining this investment - in which case they should be responsible and take the Company private, not to destroy other people´s Money.

[pj 1] 29/1/2014 13:50

baner.

Interesting response!
Not a criticism but I would be interested in why you would invest (or hold) in Company that is ''mis-managed'' as you put it

I do have concerns about debt collection as previously posted, TIA

[baner] 29/1/2014 13:32

callumross

i do not agree with you at all.

Mallett has a track record of serious underperformance and an absolutely lousy return on shareholders capital. this is a result of board and management decisions - a well managed Company in this sector would generate satisfactory returns underpinning a value where "10p" is more more than "10p" - thanks to a satisfactory return on the capital.

accordingly 10p locked up within Mallett and mismanaged by this board and management, is not worth 10p but rather, say, 6p.

by taking these 10p out of the Company it becomes Worth 10p to the shareholder, not 6p - while it also becomes totally liquid and ready to use for any purpose - for example investing in a more profitable and well managed business.

Mallett probably has 120p-ish of TNAV and is valued in the market at 70p. if you distribute 70p in cash to shareholders, i assume we can agree these 70p are worth 70p (and potentially more) to these shareholders. are you suggesting the remaining 50p are worthless? i do nót!

thus the belief that, as long as Mallett continue to be mis-managed, any surplus cash should be handed over to the owners.

[callumross] 29/1/2014 12:53

Rainmaker. I think you get too hung up on the benefits of a possible 10p special dividend. Why would this be positive for investors? I am a holder but all that will happen is that I will get a 10p capital payout and a corresponding 10p fall in the value of my shares when it goes ex the special dividend. The dividend by itself adds no real value to existing shareholders or offers any real incentive for investors to invest in MAE for the first time.

[cockerhoop] 29/1/2014 12:41

Jeroen Bos obviously too busy marketing his book to inform that he'd reduced his holding to under 8%.............last August!!! :-)

[strange1] 27/1/2014 13:21

Presumably there are fundamental problems with the inventory write down assumption. If there were to be an upward revaluation it would mean they still have inventory they have held since 2009. If this were the case then the reality is they must be holding inventory that simply will not sell.

[orinocor] 26/1/2014 14:08

Rainmaker is now saying Mallet's share of Masterpiece is worth at least £1 million. Not long ago he was saying repeatedly it was worth at least £7M even though that put Masterpiece on a PE ratio of about 100. No explanation and no apology has been offered by Rainmaker. This is a good example of why investors should always do their own research and treat the statements of bulletin boards gurus with scepticism. In nearly all cases these people have vested interests in talking up their investment. Objectivity goes flying out the window.

[rainmaker] 26/1/2014 12:32

Hi PJ, I made exactly that point in a previous post.Mallett as a cash generative service business, in times of normal trading, historically trades on a high rating.The cost of moving to Dover Street and its refurbishment has already been paid out of the £1.7mln sale proceeds of their New Bond Street lease.

I'm sure sentiment and therefore the rating will positively change once they pay a special dividend and as expected, reintroduce the ordinary one this year-see my previous post.For anyone unaware, the Clapham High Property was sold last year for £2.65mln, the equivalent of 19p a share and we're just waiting for the deal to be completed on 21 February subject to their restoration business finding suitable alternative accommodation which can't be too difficult.

There's terrific business to be done in China now the worlds largest market for arts and antiques,particularly at the very top end of the market in which Mallett have tightened their grip in recent years with the demise of large and direct competitors Partridge Fine Arts and John Hobbs in 2009.The Company embarked on a marketing drive there some 3 years with the appointment of a Hong Kong based representative and there have been several fact finding and contact gathering trips there.I expect Mallett to open office in that region.This positive factor imo isn't reflected in the current broker forecasts.

Then there is the potential value enhancing subletting of their Madison Avenue showroom for which we await news. Finally there's the possibility of an upward adjustment in their £11.5mln of inventory which I think will happen this year but Readers will have to look at all the available evidence and make up their own minds. Simply put, Mallett is involved in a highly cyclical business. Strong anecdotal evidence such as sales in their New York showroom doubling in the first half of last year and returns at the Masterpiece exhibition in 2012,the best in more a 12 years show that the upturn has already started because buyers have returned. With the return of buyers, we can expect higher prices since there is obviously a limited availability of antiquities not in the hands of private collectors or museums.Furthermore there is very little in the way of new offerings coming onto the market from British Country Estate clearence sales-the number of these auctions sales has slowed to a trickle from 2 a month thirty years ago to perhaps 2 a year now.Anyway Mallett's inventory was written down by over £3mln in 2009 but to date, there has been no significant upward rerating.

All in all, there are plenty of potential value enhancing factors bubbling below the surface. I believe Mallett will be a surprise hit this year and I expect a 50% to 70% return from the current historically low levels and also for the Comapmy to have paid a special dividend of around 10p and have resumed the ordinary dividend of some 2/3p.

Sometimes as a Value Investor you just have to exercise great determination, patience and tenacity, Mallett is just one such example. Over the last few years there have been numerous examples of Value shares, all covered on my thread, whose prices have gone stratospheric with tremendous multibagging returns in a short period of time which is great but you have to take the rough with the smooth-you can't separate the two types of eventualities
because you can never be absolutely sure which is which at the point of entry. All you can say, is that Value Investing works and that if you have the prerequisite knowledge and personal attributes and you are properly diversified then as history shows you make good or even great returns.

AIMHO, DYOR

regards

[pj 1] 25/1/2014 16:01

I notice that @ year end 2011 this traded at x21 eps. Will be interesting to see if the Market awards it a higher P/E if they hit targets

[rainmaker] 24/1/2014 20:06

Hi Callum, I think it was hurricane Katrina. I really don't think it makes much difference. It's like buying or selling M&S because of good or bad weather,it's intuitively appealing,topical and I suppose it's good for Brokers business but in the grand scheme of things I think, it counts for very,very little. However it won't stop some Companies using bad weather as an excuse.Will the heavy snow in the US, stop Mallett completing the sale of their Clapham High Street property for £2.65mln or 19p a share or moving their restoration business to a new address? Or prevent them from paying a special dividend in the order of 10p a share?Or what I consider to be a likely substantial upward rerating this year of their £11.5mln of inventory?Does it make their 23.75% Masterpiece stake(and free at the current sp)any less valuable? Will it affect consumer confidence? The answer has to be no on all counts.

I think the share price slide which started before the heavy snow arrived in New York has more to do with long suffering shareholders restlessness and impatience.A falling share price then attracts more selling from unsettled shareholders unnerved when Company share prices in general, have been strong-there're thinking the market knows something when the market knows nothing.

I should also add that aside from the special dividend, the Company have already said that they will resume paying an ordinary dividend "once financially prudent to do so" ie when they're making money.There expected to make 6.1p this year and 7.6p next.Under normal conditions this is a veritable Cash Cow, for many years it paid a 9p annual dividend.

AIMHO, DYOR

regards

[callumross] 24/1/2014 16:20

We,ve certainly seen quite a pullback in the share price in recent months, Rainmaker. There has certainly been a seller in the market since October, I know that. What I was thinking was that perhaps sales from the New York showroom will have been hit by the two severe weather episodes they have had over there in December and January. I remember they warned on this very issue a year or two back. Thoughts?

[baner] 21/1/2014 09:33

it seems it is not only the Mallett inventory that is very slow-moving - also the CFO has obvious issues in this respect; he was due to leave more than six months ago and it appears he is still around - albeit at the very humble remuneration referred to above. the proceeds for the Clapham property is due in a month time so hopefully there will be funds in place also for his march salary!

[rainmaker] 20/1/2014 15:42

hahaha, very good Baner..........you almost make me feel sorry for the poor chap!
Maybe if we paid him a bit more, he might work a bit harder.........nah

regards

[baner] 20/1/2014 15:29

what can you expect from a CFO costing the Company as little as Mallett´s? the poor chap is paid only £150k or so per year - plus benefits and pension, stock options etc of course. not much, and thus we should not request that he chase debtors for payment!

to this should be added the miserable working environment - an old building in congested London - full of old furniture and stuff. no fun.

[rainmaker] 20/1/2014 13:45

Hi PJ-look at the important solvency ratios- ie Mallett's current ratio which is 3.52(2 or more is considered to be a strong figure) and the net quick assets or so called acid test which around 1 which is satisfactory.You take liquid assets less inventory and divide by current liabilities.

However I think it's a disgrace that the debt collection period at some 150 days ie roughly 5 months. They need to get that figure down to 30 days.Why should Mallett let their Customers eg private collectors, Museums etc use them as a cheap source of credit?

I believe the earnings estimates do not include exceptional items such as Property sales.

regards

[pj 1] 15/1/2014 11:57

Posted on EEzys thread so posted here...
Ref. Mallet.
Having a quick look and certainly an interesting Company (fine antiques) and planning permission Granted whilst now relocating Hatfields.

However (Iam no Accountant) Half year debtors = £5.2m, creditors (4.3m) from HALF YEAR rEV OF £6.6m.

I suspect they are reluctant to chase customers for fear of losing repeat Business, but they are scary figures and carrying a large risk of default (bad debt).I also note the FD is continuing another 6 months (lets hope he gets some cash in!!)

Any views? TIA pj

Also Broker targets eps 2013, 2014 2015 of 0.4,6.1, 7.6. I assume these are from Sales of property rather than increase in T/O hence profit?

[eezymunny] 03/1/2014 09:54

Bought these for the Eezymunny portfolio fwiw...

[elmfield] 05/12/2013 19:54

Bit of the market is high enough,
Not much to chase after,
Bit of profit taking and cashing up
See how things go over next months.

[rainmaker] 29/11/2013 21:30

Thanks Glen-I'll obtain a set of the latest accounts for Masterpiece and we can do some mathematical manipulation to give us some idea of the average stand value(since we know the price of admission and the number of visitors) and the likely impact on profitability of an increase.OK, so there's corporate sponsorship and complimentary tickets for exhibitors but we can be roughly right rather than precisely wrong so it's a useful exercise.There was a indirect quote from the Chairman of Masterpiece in 2012 that there had been 300 applications for stands(amongst others,there was a article in the Economist stating this) but this year the number of exhibitors dropped slightly to 159 from 166-170 but profits increased slightly due a 20% increase in visitor numbers.

I think you're right that even if we ignore the value of Masterpiece, of which Mallett's stake is worth at least £1 million, if it's worth a penny then we're still left with an undervalued business. Some factors that Investors should consider about the main business-


Cyclical nature of main business-along with luxury goods, strongly cyclical. After turnover dropped some 43% in the second half of 2008 trading has since stablised and recovered. Anecdotal evidence strongly suggests that the upturn in Malletts particular markets has arrived with Mallett best returns at any exhibition this side of the millennium in 2012 and turnover in New York doubling in the first six months of the year.Historically their their sales are some £4mln below average and £7mln below the cyclical peak in 2006.


Mallett have increased their market share over recent years with the demise of Partridge Fine Arts and John Hobbs in 2009 but more significantly have greatly strenthened their stranglehold at the very top end of the market where these Companies operated. This is an important factor since it gives the Company far greater bargaining power in not just the buying but the selling of important/expensive pieces so expect both turnover and bigger margins on the incremental turnover.Also note that Mallett have over £14mln of stock for sale on consignment.

Possibility of upward revaluation of their £12mln of their inventory-I think this will happen this year because it's a natural conclusion that with limited supply, that prices will rise as buyers return and their markets recover. Note there was a writedown of stock in excess of £3mln in 2009 and there has been one neglible upward revaluation of £200k, in 2012, I believe.

Cost savings eg relocation of their London showroom saving over £600k a year along with other overheads.

Significant increase in business in China now the worlds largest market for Arts and Antiques. The Company appointed a Hong Kong based representative and have made frequent trips to develop contacts and Customer relationships.

regards

[profdoc] 27/11/2013 09:41

Thanks for the clear and detailed analysis Rainmaker. I hope you are right about Masterpiece. Even if you are not the rest of the business seems to at least justify the current market capitalisation. As shareholders we will have to remain vigilant and insist on continuing shareholder value enhancing actions, even if that means upsetting the BOD with negative AGM votes. But, I have to say, the action taken in the last few months are encouraging and we can talk softly (sheathing our big stick).