Skate's Art Investment Review

On September 26, 2013, the boards of Stanley Gibbons and Noble Investments announced that they had reached an agreement on Stanley Gibbons’ acquisition of a 100% stake in Noble, and on November 21, Stanley Gibbons announced that the acquisition had been completed under the terms initially proposed. As a result, Skate’s is announcing that Nobel Investments, in ceasing to exist as a publicly traded company, has been removed from Skate’s Art Stocks Index effective November 22.

This consolidation deal in the collectibles segment gives the new Stanley Gibbons several key advantages, including greater scale, product diversification, and better access to capital. Skate’s believes that it makes considerable strategic and business sense and therefore applauds this transaction.

As a result of the consolidation, oligopolistic market dynamics in the coins and collectibles segment between Collectors Universe and the new Stanley Gibbons will resemble the similar dynamics long observed in the auction world between Christie’s and Sotheby’s, as well as in the price database market between artnet and Artprice.

Skate’s Art Stocks Index has been updated to reflect Stanley Gibbons’ acquisition of Noble Investments. To read more about and view the current index, please visit http://skatepress.com/?cat=2.

artnet AG has released its nine months financial results, which present an overall bleak picture caused by declining revenues, among other factors. The EUR 0.5 million shareholder loan that the company’s founder and majority owner, Hans Neuendorf, had to provide in March to keep it out of insolvency was a further sign of trouble. The most important new information, however, is the disclosure that artnet’s management supplied its shareholders with “incorrect” financial statements dated June 30, 2012.

The inaccurate accounts pose a potential threat of major litigation for artnet. The company’s shareholders received a hostile tender offer from Redline Capital Management SA in September 2012 when the Luxembourg-based and Russian-owned investment firm offered EUR 6.4 per artnet share, which at the time represented a 40% premium to the market price. A majority of shareholders voted to reject the offer, however, and artnet’s stock is currently trading well below EUR 3 per share.

In other words, artnet shareholders relied on “incorrect” financial information when making their decision about the tender offer received from Redline last September.

Page 14 of artnet’s September 30, 2013 financial disclosure reads:

The German Financial Reporting Enforcement Panel (DPR) established that the condensed interim consolidated financial statements were incorrect for artnet AG, Berlin for the period ended June 30, 2012.

As of June 30, 2013, the condensed interim consolidated financial statements have posted a revenue of 229,000 EUR from the continued operations, and a loss of 1,374,000 EUR from discontinued operations. The expense of 232,000 EUR was falsely allocated to the discontinued operations. This expense would have carried on despite the closure of the magazine.

Additionally, as per the definition, the closure of the Paris office does not fulfill the requirements of a Discontinued Operation. If the expenses from the Paris office had been distributed among the business divisions, as they were in fiscal 2011, earnings would have been reduced by an additional 512,000 EUR. The incorrect disclosure of earnings from discontinued operations violates IFRS 5.33 (a).

The previous year’s information from the condensed interim consolidated financial statement and cash flow for artnet AG for the first nine months of 2012 was corrected in the condensed interim consolidated financial statement for the first nine months of 2013 to reflect the DPR’s findings. The revised figures in the charts have been indicated as corrected. All information in this interim statement reflects the modified amounts.

Redline has declined to comment on this report.

In a separate development this week, German-listed Weng Fine Art AG, Redline’s acting-in-concert partner for the 2012 takeover bid, announced that it went over the 5% ownership threshold in artnet AG by acquiring shares from the California-based Artis investment fund. It reported a 5.33% ownership interest in artnet AG as a result of this transaction.

For more information about artnet and its nine months financial disclosure, please visit www.skatepress.com/?cat=56. For more information on Weng Fine Art AG, please visit www.skatepress.com/?cat=149.

Mallett, a publicly traded antiques and fine art dealer, recently published its results for the six months ended June 30. The London and New York based company posted a pretax profit of GBP 0.2 million, a figure that represents a GBP 0.1 million increase compared to the same period last year, although it is still below the GBP 0.3 million achieved in 2011.

Although Mallett’s total sales dropped slightly to GBP 6.6 million, from GBP 6.7 million in the first half of 2012, gross profit remained constant at approximately GBP 1 million.

The art dealer credits its positive financial results mainly to the improvement in the U.S. market. The turnover for Mallett’s U.S. operations almost doubled from the same period last year, from GBP 1.7 million in 2012 to GBP 3.4 million in 2013.

The upturn in the U.S. market has caused the company to revise its planned subletting of part of its New York showroom, a measure considered in line with its 2013 strategy to contain costs.

“The market in the U.S. has been dwindling for some years, and we thought we would be able to save a significant amount of money whilst keeping a presence in New York by letting out part of the showroom,” Mallet’s Finance Director, Michael Smyth-Osbourne, told Skate’s. “Then the economy picked up and the business started coming in, as a result of which we are revisiting the U.S. strategy,” he added.

In terms of further property management changes, the company announced that it has signed an agreement to sell its freehold Clapham property for GBP 2.65 million. The expected completion date of February 21, 2014 is to give enough time for Mallett’s restoration subsidiary Hatfields to relocate. Mallett’s board is looking into how best to manage the proceeds from the sale, including a possible return of cash to shareholders.

Despite the fact that the market in the UK has proved difficult during the reporting period, and although the company remains cautious as to its outlook, there are signs of improvement, Mr. Osbourne said. Masterpiece London Limited, of which Mallett owns over 23%, staged its fourth fair at the end of June, which saw a 20% increase in attendees to almost 34,000 over the eight days of the event. Mallet’s share of the profit is expected to be approximately GBP 85,000, compared with GBP 83,000 last year.

The art retailer reported modest sales in Brazil and China, in line with the company’s 2013 strategy to promote Mallett in these and other emerging markets.

Finally, the company announced its continued focus on turning the Mallett website into a competitive e-commerce platform. “Websites are becoming a key sales tool for any business, and we would like to use our website for both marketing and sales and additionally, turn it into an educative tool, with proper photos, history and background of the antiques,” Mr. Osbourne said.

During the reporting period, the company completed the sale of the business and certain assets of James Harvey British Art Limited.

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Collectors Universe, a leading provider of value-added authentication and grading services to dealers and collectors of high-value collectibles, as well as a constituent of Skate’s Art Stocks Index, announced on July 31 that it would pay a quarterly cash dividend of $0.325 per share of common stock for the first quarter of fiscal year 2014. The cash dividend will be paid on August 30, 2013 to stockholders of record on August 16, 2013.

Collectors Universe has kept its quarterly dividend of  $0.325 per share steady since November 2010. Shares in the company are up 3.08% since August 1.