Stanley Gibbons Share Discussion Threads

[masurenguy] 01/7/2008 12:32

Historic PER of 11, current year 8.6 and prospective forward PER of 7 with a PEG of 0.3. In a more normal market this would appear cheap but there are a lot of FTSE 100 companies on single digit PERs and low PEGs too at the moment.

[don carter] 01/7/2008 12:15

Just bought a little chunk more at 145.9!!! Thought those days had gone. Hope I'm not crazy, but it's nothing to do with housing and even on a reduced pe of 10 in this lousy market, SGI should be at least 150p.....and with a yield now over 3.5%.

[trigger45] 20/6/2008 07:55

Thank you for sharing your views. Very much appreciated.

[bookworm1] 18/6/2008 11:38

Interesting to draw comparisions between SGI and CEL which has just announced its preliminary results today. Both are profitable growing companys with little or no debt & strong cash flows. Yet both have seen their share prices fall relative to the FTSE 100 by 25 - 30% over the last 12 months whilst eps have increased by 40% and 13% respectively. SGI would appear to be the stronger of the two plus it pays a dividend.

Yet I suspect that you are right and concerns about 'risk' are (IMO wrongly) affecting the share price of SGI.

Whilst I think both companies exhibit good growth prospects their value is being downrated like the rest of the market. The question is will the market push these valuations even lower?

Although I still believe that stamps are a good defensive stock in recessionary times it may well be that Forums exit has pushed the price down significantly and we are just seeing the consequences of extra liquidity in a weak market for shares.

[wilmdav] 18/6/2008 11:07

Many thanks for the extra insights guys - very helpful to me.

The feeling is entirely mutual!

[chairman2] 17/6/2008 23:06

Many thanks for the extra insights guys - very helpful to me.

I have a City background so am familiar with the changes to
Fair Value accounting practice over the past two years.

It is not just that this is driving the timing and nature
of the disclosures - which is what has happened. The key
element of the change in the new world of financial reporting
is that it places all its emphasis on balance sheet. Investors
still want a profit and loss account, and a cash flow and to know
where the dividends are going to come from. They and most
company managements are pretending that nothing has fundamentally
changed. But it has.

For SGI with the key element being stock and valuations - probably
more important than 'sales' the new fair value accounting should
eventually be seen as a tremendous boon - but for the first few
years increased volatility, guesses at changes in fair values of
assets and liabilities on books will produce results that may
require a bit of an explanation. Just look what has happened to
banks - and those guys were supposed to understand this accounting
stuff and also to understand 'risk'.

[bookworm1] 17/6/2008 18:50

Chairman2 & Wildav - some quality posts many thanks for both taking the time to express your thoughts and opinions so well.

FWIW - I continue to believe that the GMR is a sales tool and the perceived risks are adequately covered by the provisions in the accounts. IMO this is the cornerstone of their sales growth strategy as it attracts new investors to high value stamps.

Although I can accept a certain amount of reticence amongst the management to talk about their plans now the matter has come to the attention of shareholders I would expect it to receive gradually more disclosure year on year to confirm that the strategy is working and that all the risks are adequately covered.

Most companies carry some form of bad debt provision and this in my opinion is just SGI's equivalent.

With such a well respected brand name and only 1% global market share it is clear that the long term strategy for this business has to be focused on increasing their market share. Using the internet to appeal & market their product range of high value stamps to high net worth investors from all over the globe makes a lot of sense despite global recessionary concerns.

To date their richest investor is based in Brazil. It was in New York. Next year it will probably be China.

[wilmdav] 17/6/2008 14:05

Chairman

I agree, our differing hypotheses about the motivation of Forum's exit may not necessarily conflict. Both can serve as templates within which understanding of SGI's business model and prospects can be enhanced.

As you say, small caps have suffered disproportionately in the current environment. It's important for PIs as well as FMs not to panic. At least we don't have to worry about clients withdrawing funds from our portfolios. I suspect many small companies, SGI included, have numerous fund holders below the declarable 3% range and that many of these have been forced to unload.

The concentration issue is also reflected in differing PI portfolio policy. I prefer to spread risk among around 50 stocks rather than kid myself that I can research 10 – 15 well enough to achieve superior results. That does not discount the possibility that some individuals are capable of so doing, particularly if working in the right places.

I read somewhere in the Forum blurb that their background is in private equity. This rather supports your activist label. Nevertheless, I can't excape the impression of an element of naivity in their online presentations. Like you, I doubt that their aims are realistic.

The first note of Forum's interest appears in SGI's 2004 AR with a 10.27% interest at 25/02/05. The rest were bought between 10/03/06 and 03/07/06.

SGI's 2005 AR contained a brief note that they had developed "a number of financial-based products to suit the various needs of collectors and investors". But the 2006 report (issued in 2007)was the first to mention "fixed return contracts" and to show a provision against them. My theory has it that Forum became increasingly uneasy about these developments in light of the financial climate post-August 2007. They probably also latched on to concerns expressed about these products elsewhere.

GMR contracts do indeed guarantee an annual return of a fixed percentage over an agreed period (3 – 10 years). In which case, SGI get the stamps back of course. There are other options for the investor at end of contract, e.g. SGI repurchase at 75% of portfolio catalogue value; sell through SGI auction; investor retains portfolio. Most holders will be aware that the interest is simple, not compound.



I note with approval that the website has been upgraded and maximum GMR period reduced from 20 years to 10.

Your point about wide valuation gaps between what SGI call 'investment material' (the best) and the rest is valid. It is emphasised in publicity material and the CEO reinforced what you say in that GMR increases chances of the material coming back into stock later.

Michael Hall is young, imaginative and enthusiastic, but my impression at the AGM was that he is also a listener and pragmatic. He had held visions of growing the business by pursuading the financial services industry to link investment products to rare stamp values. GMR products seem to have been a first step in that direction. At one point an investment bank had expressed interest but it came to nothing in the end. Whether Michael still feels this way, I do not know. But the thought of exposing stamp values to the machinations of hedge funds and the like fills me with aversion.

Thanks for another thought provoking post.

[chairman2] 17/6/2008 01:20

Thanks Wilmdav

especially appreciated the pictures!

I dont see there is necessarily any conflict here between our two interpretations.

Whilst it is worrying that Forum should identify a large potential future capital loss - if that is SGI - it does sound like v. sour grapes.

The European small caps sector is a very specialist area of Investment Management expertise. I should declare a small interest in Ashton
Bradbury's outstanding Old Mutual Smaller Companies Trust in which
I have been invested.

Small caps have suffered disproportionately recently and it is
vital in generating positive returns that FM's do not panic because
if they do they move the price against their own interest.

Then there is the issue of concentration. A focus on only 10 to
15 stocks in what is a high risk segment is indicative of a much
more risk taking activist approach. Most small cap funds would target
a portfolio of 50 - 75 stocks in order to get diversification risk.
It is just not possible to get good enough research to be able to risk
that few holdings - just my understanding of the industry view.

So for me that indicates that Forum are doing something different,
and the words "target a 20% absolute Return" are dead give aways.
The long run 10-15 year return on specialist equity is about 11%,
and Forum say that that is their time frame. Any FM who gets +2%
alpha above that market return would be hailed as a genius. Forum
aim for that and even more say they are not aiming to get through
revaluation of their holdings (higher pE's etc.). What';s left is
excess returns through corporate action or change which means being
there at the right time or helping make it happen.

Turning to the issue of the Guranteed investment return products
- I have followed this but would not claim to be an expert. What
I would claim is that no competent FM could 'discover' this as a
new risk factor likely to lead to an immediate implosion. The
reason is that it has been visible in the balance sheet for a
long time. And SGI have developed answers to the concerns - which
if you accept you buy in and if you dont you dont invest in the
first place.

I would like to hear more arguments from knowledgeable critics
of this aspect of the business - to set my own mind at rest.
I suspect that the guarantees are not exactly cast iron and not
exactly equivalent to hidden debts. The reason? The guarantee
to a buyer is not that SGI will make up any shortfall in value
in cash - the guarantee is that SGI will undertake to sell the
material if the buyer gets worried about it falling in value.

SGI would then take the stuff onto their own books as "stock". In an
operation rather like the way that Diamonds are released onto the
market by De Beers SGI then would aim to control the re-sale. If,
like Diamonds, the gap between the very top quality and the also-ran
stuff is widenning with the best and rarest stamps being continually
bid up, then the gurantee is really a major advantage for SGI and it
should be looked at as a mechanism by which they ensure they get the best stamps back into their own books to sell again and again.

Of course this explanation may be too facile. Has there been a boom
in alternative investments in high quality rare stamps? There has
been a boom. If Hedge Funds had been buying in large quantities
and all decided to liquidate at once they could - in theory - crash
the stamp market in the same way that other markets can be crashed.
But there are no derivative contracts or CFD's in stamps and you
cannot sell them short. Oh and they are very illiquid. So I dont
think it is an attractive game to play.

Only my view of the way it works.

[wilmdav] 16/6/2008 19:38

Chairman

Thanks for the clarification. Whilst not quite sharing your conclusions I appreciate the informed and considered input. The HF situation you describe is very much as I had suspected.

Here is a more informative Forum link.



My impression is that they are 'activist' in the sense that they try to work with managment but are not of the sort to push for special dividends and gearing up. They also strike me as rather idiosynchratic, almost simplistic in some respects.

It's worth a look at pages 8-10 of the "Quarterly Report", particularly Section 3.2 on page 10.

"We have identified one business with a risk of a strong permanent loss of capital due to recent decisions taken by management. If this risk materialized it would have an impact of more than 10% on overall assets. We are concentrating our efforts on disposing the business as fast as possible. As the shares are highly illiquid this requires a negotiated solution."

I suspect this refers to SGI. Although the report is dated 30th April, it covers Jan - March and was probably written earlier (Forum shares were placed in late April). I further surmise that they took fright at the Guaranteed Minimum Return Products. Some very rude words have been said about these on TMF, partly on the grounds of risk and partly diminution of the Stanley Gibbons blue chip image.

It would be foolish to align oneself with these views without knowing how much additional business these products bring in - but I do feel uneasy about them, particularly on the image front. Others, including Forum, may be more concerned about the perceived risk.

It happens that the disposal coincided with my bringing the above TMF views to the CEO's attention. If GMR risk was the reason for Forum dumping SGI, I'm pleased because it will have prompted management to re-assess the pros and cons.

Here are two pictures of the Guernsey office. The second one is unashamedly advertising the GMR facility in the right hand window.




FWIW I bought some more today.

[wilmdav] 14/6/2008 13:51

I discussed the Forum disposal with Esquilax100 on TMF, from post number 108261 in the thread.



Chairman

I've done a fairly intensive search on google but can't find anything that associates Forum with activist management. Obviously that doesn't mean what you say is without foundation. It's hard to imagine anyone just cooking up such a story. But the fund's mission statement is so contrary (e.g. emulating Buffet etc) to the picture you paint that some sort of verification is called for . You say all companies hate them. Do you mean activist managers gererally or Forum in particular? As far as I am aware they only have two other UK investments, both small companies and both in the pits when I last checked. Maybe a search in German would have produced more enlightening results.

You have clearly got some street cred from at least one of this board's members. Are you willing/able to provide confirmation of any sort - or maybe point those of us who don't know you to one or two of your other influential posts?

In one sense it's all rather academic. Forum has gone. But if what you say is true it would rather reinforce the view that SGI's recent slide presents investors with an enhanced opportunity. I do accept the likelihood that hedge funds are currently having another bout of disruptive selling

[bookworm1] 13/6/2008 14:43

Chairman thanks for 'lifting the veil' on that I assume they were technical terms you were using to describe investment style. Still it seems to have done the trick and now the shares are heading back up. ;-)


"We are constantly looking for high quality, well-managed companies in growth markets and only invest in companies that are profitable and generate cash – simple businesses we can understand reliant on organic rather than acquisitive growth."

[hywel] 13/6/2008 13:07

The Company was notified on 12 June 2008 that the Montanaro Group is interested in 1,131,300 ordinary shares in Stanley Gibbons, representing approximately 4.5 per cent of the issued share capital of the Company.

Anyone know if Montanaro Group had a holding before? I've been through the last few 'Holding In Company' RNS' but haven't seen them mentioned before.

[don carter] 13/6/2008 12:09

Chairman,
Thanks for that. Very interesting and useful.

[tom.muir] 13/6/2008 09:45

Thanks for that insight Chairman. If it had come from almost anyone else I would have reached for a large pinch of salt but having seen your opinions on other boards (ANGL in particular) I have come to respect your postings. I had bought into the story of the family trust, long term investors etc but now I am glad to see the back of them. Cheers, Tom.

[riskblue] 12/6/2008 21:11

Thanks BW1 - that makes much more sense to me now. I guess it's wait and see.

[bookworm1] 12/6/2008 18:47

Chairman2 there was some discussion on this BB about Forum. They are a private fund for just two families in Germany and do long really term investing (inter generational). They publish their investing strategy and explain generally their reasons for pulling out of a share on their web site. i.e. change of management or change in business model that they are not sure about.

They may have applied both of these reasons to SGI and decided to withdraw. However I think they are being super cautious we will soon see if;

a) The new management team are working well together
b) That their sales strategy is improving sales and profitability
c) and provisions are adequate and risk has not increased.

[chairman2] 12/6/2008 17:42

All HF's are selling at the moment

they need cash because their own investors are liquidating

[orange1] 12/6/2008 16:44

There was a report in the Times a few weeks back along the lines that Forum do not sell out of companies they have invested in lightly; that is to say, they sell out only where their assessment of the company has changed or the company is heading in a direction they don't agree with.

[nephie] 12/6/2008 16:18

buy the dip

[bookworm1] 12/6/2008 16:17

Forum who had a 19% stake in the business decided to sell their shares and announced that they had placed them with the company brokers at the AGM. No money was raised by company. However with the current market they are probably having difficulty selling these shares on the market.

[riskblue] 12/6/2008 15:51

I think the big share placing at 176p will have had a big impact, along with the general amrket downtun. Has anyone seen any specific information about why the placing and what the money was for?

[bookworm1] 11/6/2008 19:11

Not looking too good. 30% down over the last 12 months. Interim results due early August and if half year results are in line with forecasts this would be a good buying opportunity. But I would hate to imagine what would happen if results were below expectations. Stamp collecting is a passion and an investment. I dont see it as discretionary expenditure. More likely that the market has just got the jitters. I have seen a few good stocks pushed down recently only to bounce back up. Unfortunately for long term holders the net gain has been quite small but the volatility means that if you can catch the bottom the gains are quite quick and substantial.