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Scholium (LSE:SCHO), a Mayfair-based dealer in rare books, floated on AIM in 2014, raising £7m to expand its small business. In the three years since then, even though inventory doubled, turnover has not budged, resulting in the average time to sell a book being 21 months.
I’ll come back to these negatives, and other negatives, later. For this newsletter I’ll focus on the balance sheet which, at face value, shows a net current asset value much greater than its market capitalisation. MCap fell from £13.2m at the time of flotation to only £4.9m today (share price: 33p – 36p)
Tracking net current asset value, NCAV, over time
| £’000s | Sept 2016 | Mar 2016 | Mar 2015 | Mar 2014 | Mar 2013 |
| Inventories | 7,879 | 7,550 | 7,471 | 4,667 | 3,331 |
| Receivables | 1,323 | 2,034 | 1,694 | 1,816 | 1,368 |
| Cash | 1,154 | 1,309 | 2,122 | 7,578 | 196 |
| Additional item | – | – | 162 | – | |
| Total current assets | 10,356 | 10,893 | 11,449 | 14,061 | 4,895 |
| Less all liabilities | -792 | -1,115 | -1,658 | -3,658 | -4,060 |
| Crude NCAV | 9,564 | 9,778 | 9,791 | 10,403 | 835 |
| Deduct one-third of inventories and one-fifth of receivables | -2891 | -2923 | -2829 | -1899 | -1384 |
| Adjusted NCAV | 6,673 | 6,855 | 6,962 | 8,504 | -549 |
The dramatic impact of the £7m being pumped-in at the IPO is clear to see (An aside: But why did they have to pay £1m in fees to financial advisors for this fund raising? Suspicious? I would be). In March 2013 net current asset value was negative and the company carried only £3.33m of stock. Despite its low capital it was profitable that year – admittedly, only just profitable, but that was better than subsequent periods.
Then inventories jump to £4.7m, and then to almost £8m. They certainly went on a spending spree to see if they could generate greater interest from collectors. The answer, as we’ll see in the next Newsletter is: No.
Note the decline in NCAV over the last two and a half years from £8.5m to £6.7m. This average monthly erosion of NCAV of £61k might not abate. The managers regularly talk……… To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
