Collectors Universe (NASDAQ: CLCT), one of the twelve companies listed in Skate’s Art Stocks Index, was one of the best performers in October, gaining 33% and ending the month at $7.48 per share, up 155% on a year-to-date basis.
A leading provider of authentication and grading services to dealers and collectors of high value collectibles, CLCT was valued at $63 million as of October 30, 2009, which makes it the fourth largest company among Skate’s Art Stocks in terms of market capitalization.
The upward correction to the CLCT share price was caused by overall perceived improvements in the collectibles market, as well as CLCT’s own announcement of resumed dividend payments and an upcoming shareholders meeting.
The announcement of a $0.25 quarterly cash dividend with a November 10, 2009 ex-date (stockholders of record as of this date) implied a 17% (sic!) annualized dividend yield at the closing CLCT share price on October 23, the last trading day before the CLCT board of directors approved the new dividend policy on October 26. This announcement sent the CLCT share price into an approximate 25% rally during the last week of October, albeit on a small volume.
The timing for the announcement was also interesting. Almost simultaneously with the new dividend policy announcement, CLCT called its annual shareholders meeting for December 8, 2009, although investors who bought the stock during last week of the October rally will not be eligible to vote, as the ex-date for the meeting was set for October 20, 2009. The annual meeting is not expected to bring any surprises, as it has only two items on the agenda – neither of which brings any change. Shareholders will be asked to reconfirm the mandates for the existing board (no new names in the seven-member board) and of the auditor (same non-Big 4 name).
Skate’s believes there will be no lasting upside effect from this dividend announcement. At a P/E of 57, CLCT is very close to our target price of $8 and is likely to drop by more than $0.25 after the ex-date of November 10. In the absence of other news, we see the stock dropping back below $7 in November, as no fundamental new economics can justify current highs. However, having a $0.25 cash dividend budgeted for the coming year should provide CLCT with a welcome support line at $6 per share (which we would expect to hold even if market benchmarks head south moderately) – the level CLCT was not even dreaming about when it ran a share buy-back program earlier this year at maximum offer price of $5.40 per share.
Having a market capitalization exceeding $50 million and remaining unleveraged puts Collectors Universe in a great position in terms of merger and acquisition targets in adjacent art market fields. While not all of CLCT’s prior deals were successes, the company remains the stock to watch. We maintain our target price of $8 for CLCT in the hope that some of interesting M&A proposals materialize shortly after the December shareholders meeting.
Exhibit 1 – Collectors Universe (CLCT) vs. Skate’s Art Stock Index (October 2008 – October 2009)