Mallett as cheap as chipboard

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Under the cosh, not the hammer We keep hearing of record prices for art and antiques, yet at Mallett’s current share price of around 60p, a whole dealership is valued at a paltry £8.5m, less than half the price fetched by a single chair at auction a year ago. Mallett (MAE) has offices in London and New York, although it was founded in Bath in 1865. Recently it launched Meta, which makes contemporary furniture and objects using eighteenth century craftsmanship (like this wardrobe cunningly disguised as a fig tree), and James Harvey British Art, a gallery. It owns 60% of Hatfields Restoration. Something went desperately wrong in 2007 and 2008 and the company made heavy losses (source: Sharescope):         And it’s financial strength deteriorated too (source:   Conventional wisdom says high quality antiques and art do relatively well in a recession, but in its annual report Mallett quotes independent research that the market for fine and decorative art fell by 26% in 2009, despite the sale of Eileen Gray’s Dragon Chair, the world’s most expensive at £19.6m. Partridge Fine Arts, a competitor, went into administration and other dealers, including Mallett, are clubbing together to hold antiques fairs, after a world-renowned London fair closed. If that sounds bad, it’s a better situation than last year when the company wrote down the value of its stock by 17%, a plan to move from its expensive Bond Street showrooms floundered along with the commercial property market, and Meta made an operating loss of £1.9m in its first year. Management must regret using up resources launching new businesses on the cusp of a recession and it seems to have cut back its ambitions for Meta drastically. It didn’t produce a new collection in 2009 and marketed the existing one through Mallett catalogues and showrooms. Predictably Mallett has cut costs to reduce its losses. By selling more items on consignment, on behalf of the owner, instead of buying stock to sell, it’s conserved cash and engineered a cash profit. In fact, according to the F_Score, the tried and tested credit scoring system I use, Mallett scores a mighty eight out of nine, falling short of a magical nine because it isn’t actually profitable. It has no long-term debt, and very little in the way of liabilities. What’s more, the shares are dirt cheap. They cost just 70% of the company’s net working capital per share, the value of its current assets, mostly antiques and art, minus all its liabilities. Mallett’s a whisker away from being the ultimate bargain company, a Ben Graham net-net. The risks are a long recession in the antiques trade, and the diminution of London as a global centre. The company says that buyers are becoming more discriminating, looking for individual pieces instead of furnishing whole houses, and it simply expects to sell less this year. A turnaround is implied by the F_Score statistic though, which incorporates trends in profitability and debt to differentiate between companies getting into trouble, and those getting out of it. It’s far from infallible, but a high F_Score like Mallett’s tips the odds in the investor’s favour. Like French Connection which I added to the portfolio recently, Mallett has been cheap as the chipboard its craftsmen almost certainly shun for over a year now, so jumping in without some indication of a turnaround can mean a long wait. Until recovery comes the company must survive by keeping costs down and selling more stock than it buys but there are risks, beyond the obvious one that Mallett runs out of time. Nearly 70% of the company is in the hands of major shareholders who could  use their voting power to delist it leaving smaller shareholders with two unpleasant options: sell their shares, possibly at a loss, or own shares in an unlisted company with no guarantee of being able to trade them. Yesterday Total Systems, which I almost added to the Thrifty 30, announced its intention to delist and earlier in the year SatCom delisted. The announcement came the day after I’d decided not to add the shares to the portfolio. It’s only a matter of time before a company I’ve backed follows suit. I take heart, though, from Mallett’s long history as a listed company and the fact that it has eight substantial shareholders, none of which are directors. Maybe some of them see the benefit of a listing. I’m adding it to the Thrifty 30 at 61.9p, the actual price quoted by a broker, less charges and tax, of course. They say the best time to buy is when there’s blood on the streets and this feels like the bloodiest transaction in the short history of the Thrifty 30. Thrifty 30 updates The current Thrifty 30 portfolio Window and ventilation company Titon is back in the black for the first six months of its financial year. There’s not much to like about construction company Waterman’s trading statement. Revenues are down, and there’s lots of political and economic uncertainty.


Hi Richard,

You've got OPD in your thrifty postfolio and they've recently delisted. The threat of delisting is beginning to strike me as being a major risk factor when dealing with these cheap companies.

I enjoy the blog, by the way.

S***T. Congratulations Dave! You've elicited my first expletive on this blog (in anger - there were a few in jest made at the expense of French Connection). In the back of my mind I'd been worrying about the shenanigans at OPD and planned to have a look at the company when it issued it's annual report. It has, and as you say announced that it's delisting.

The problem is I missed all that. I had forgotten to add OPD to my RSS reader (a way of being notified of company announcements). It looks as though this was predictable, and I might have predicted it had I not been asleep at the wheel. Expect a post mortem. Meanwhile I have to 'sell' OPD at a notional (it's not a real portfolio) loss of about 30%.

A private investor would have a choice, they could hang on to the shares in the expectation of a recovery when they might be able to find a buyer (or the company might help them to) in the future at a higher price. However, since I need to value the portfolio I need its constituents to be listed and so I'm a forced seller. What a terrible position to be in.

And thanks, by the way, for saying you enjoy the blog :-) Much appreciated. I hope my obvious fallibility means you enjoy it all the more!

And it looks like Peter Gyllenhammer has upped his stake in Mallett to over 10%. Not sure if that's good, bad or irrelevant.

I think the Waterman report is okay. At least they use the magic word "Rationalisation" which means they are doing what they need to do, tweaking the company to work in this depressed climate. Give it a few years and things might start looking up again.

Hi UKVI, I noticed Gyllenhammar's stake and chose to ignore it. I presume he's the same Peter Gyllenhammar that owns a stake in Dawson International via Leeds Group. Dawson seems to be a semi-permanent net-net and he's been at odds with the board there.

Regarding Waterman, I agree, no need to panic.

silly question. What happens to your shares when a comp. delists?
When you are buying these really cheap companies do you do a Z-Altman score against possible future bankruptcy or does the F-Score cover this issue?

ps great blog. Looking forward to reading more on "Understanding to Action" posts.

Hi Paddy, short answer is you still own them (if you don't sell them). Just because the company isn't listed on the stock market any more doesn't change that fact. The problem is you won't know how much they're worth as there is no public market for them. If they list again, or the company can find you a buyer (or you can find one) and agree a price you can sell them.

I don't use the Z_Score, though it's certainly an option. A high F_Score does indicate a company is less likely to go bust, or delist. It doesn't guarantee it won't go bust though.

Thanks for the compliment. More understanding to action posts will follow, though I've delayed tomorrow's to talk about OPD (see comment #1 and comment #2)


[...] fact, it was a reader, Dave, who told me yesterday OPD is to delist, nearly three weeks after the announcement and notification that Schroders, who no doubt got a good [...]

Dear Richard.

I think the risk of delisting comes when the majority shareholders have a common interest or aims.With Mallett I am not sure this is the case.The biggest holder is a Weinstock family Trust with 29.9%-The late Arnold Weinstocks daughter in law was on the board for many years until a split with the present board.The mixture of present & former directors and various trusts dont appear to be connected.
I must admit that an investment by Gyllenhamer is normally 'the kiss of death' for outside investors, small cap companies connected with him seem to exist in a state of 'unsuspended non animation'!It is difficult to work out his investment plans.I would not continue to hold Mallett if he obtained a major holding.
I am hopeful things may improve here there is certainly plenty of scope.I gather the cook who prepared an excellent daily luncheon in elegant style for the board,who at one point seemed to almost outnumber other ranks,has now gone in the interests of economy.


Thanks for the information about the Weinstock Trust Jeremy. Generally speaking I find the lists of major shareholders frustrating. They might be related, they might not. They might be related and get on with each other, or they might be related and be most unlikely to act in concert! It adds a speculative element to these shares. I generally take the view that if there are a fair number of major shareholders, and the bigger ones aren't current members of the board, there's less risk. Also, if, like Haynes for example, the majority owner has happily co-existed with minority shareholders for a long time, I take heart from that.

[...] is still £300m, are infrequent visitors and, with the exception of deeply distressed Mallett and French Connection, retailers have also been rarities in the realm of the very cheap [...]

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