Stanley Gibbons plunge continues

Unable to shift some of its pricey stamps and coins amid slowing Asian demand, Stanley Gibbons has warned it will miss profit forecasts this year. It isn't the first time the dealer has disappointed the City and even a step-up in business during the second-half will not be enough this time. There's a plan to make the illiquid nature of its assets more reliable, but the shares have plunged anyway amid a slew of earnings downgrades.

Despite completing some high value sales with new and existing clients, and even including a contribution from last year's Mallett acquisition, revenue in the six months ended 30 September was no better than last year.

"On 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," said the company. "Gross margins and profits are expected to be substantially below those of the same period last year, which benefited from high margin sales of material sold from exceptional purchases of major collections."

Although the UK remains the largest market for stamp fans, there are now around 20 million buyers in China alone after Chairman Mao's ban on stamp collecting was lifted. Indian stamps have been declared a national treasure, too, which means none are allowed to leave the country.

When we spoke to the investment director at Stanley Gibbons Keith Heddle earlier this year, it was "red hot" demand in Asia that was making the market exciting. Inevitably, perhaps, it is weakness in these regions which has hit profits.

And Stanley Gibbons is making a habit of disappointing the market. After failing to sell some of its inventory, the group missed estimates last year, too. When we spoke to Heddle at the time, he explained one of the "wonderful ironies" of the business was the challenge of merging the slow growth of the underlying asset with a listed company.

The shares have lost 70% of their value so far this year after crashing by a third Tuesday to just 95p, a six-year low. They've clawed back a little of that and now trade at 105p. Charles Hall, an analyst at broker Peel Hunt, has slashed his target price from 330p to 150p and downgraded the shares to 'hold'.

Hall now expects 2016 earnings per share to fall by over 30% to 8.7p, although he pencils in EPS growth of 49% to 12.9p next year. The shares trade on 12 times 2016 earnings and 11.6 times 2017 EPS.

Hall warns: "The company has had a tough H1 with a combination of a number of distractions combined with a slower market in Asia. There should be a stronger H2 performance, given a refocused management team, a stronger auction period and lower cost base. There are a number of potential sales of high value items that could complete in H2, but the quantum and timing is uncertain. Overall profits are likely to fall well below prior expectations."

Since joining the company, CEO Michael Hall has been trying to reinvent the business, investing in its online market place and trying to get a fund launch off the ground. The team are still working to evolve the business operations to ensure more predictable revenue and profit, something that is desperately needed.

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