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We saw in yesterday’s Newsletter that Scholium (LSE:SCHO) is a net current asset value investment IF we only focus on the quantitative elements, i.e. the balance sheet. But you know from my other Newsletters that I do not only focus on the quantitative.
In this Newsletter I want to start an exploration of the firms’ potential, which is determined by the qualitative.
Where it all began
Scholium has one dominant business called Shapero Rare Books. This was founded in 1979 by Bernard Shapero. He began with two stalls and an office in Gray’s Antiques Market in central London, making a reputation as a keen collector of Baedeker’s Guidebooks.
In 1989 he set up, with others, in Holland Park, where the team built up its reputation as a dealer in natural history, illustrated and travel books.
They moved in 1996 to the current premises in Mayfair, and now supply prints, maps, contemporary art and photography, as well as books. Russian literature is a particularly strong section. Average sale price of an item is around £4,000.
In 2012 the Shapero business was acquired by a company controlled by Philip Blackwell, a descendent member of the bookshop and publishing family made rich through selling Blackwell to Americans in 2007.
Bernard Shapero, 53, is still CEO of Shapero Rare Books, but not on the board of Scholium. I’m not clear how many shares he holds in Scholium, if any.
But I have discovered he walked away with about £1.25m in 2012 and was granted share options in the 2014 float (296,000 shares) – perhaps he preferred to have cash rather than hold a lot of shares in Scholium; very wise, given the two-thirds fall in the shares since 2014.
Philip Blackwell (with 14.58% of Scholium’s shares) was (is?) the key leader in the boardroom alongside Thomas James Jennings with 21.6%. Philip Blackwell stated at the time of the float he expected Scholium to make £550,000 in profits that year.
The logic behind the float was to get bigger: “It is the Directors’ opinion that the performance of Shapero Rare Books is currently being constrained by the limited capital available to it. The Directors are confident that Shapero Rare Books is capable of increasing its stock by up to £4 million and delivering a proportionate increase in sales of owned stock at a similar gross margin. The Directors believe that the business has the capacity to manage the increased sales with a minimal increase in overheads, which should therefore significantly enhance the profitability of the business. Accordingly a primary reason for the Placing is to provide additional capital for Shapero Rare Books” (Admission document, March 2014).
So, that was the plan. Let’s see how well it was implemented.
Profit numbers
| £’000s | Half year to Sept 2016
(annualised) |
Year to March 2016 | Year to March 2015 | Year to March 2014 | Year to March 2013 |
| Revenue | 4,254 | 6,742 | 5,166 | 6,733 | 5,936 |
| Gross profit | 1,806 | 2,376 | 1,893 | 2,779 | 2,334 |
| Gross margin | 42% | 35% | 37% | 41% | 39% |
| Distribution costs | -282 | -345 | -268 | -423 | -525 |
| Administration expenses | -2,002 | -2,031 | -2,148 | -2,415 | -1,497 |
| Exceptional loss | -24 | ||||
| Loss from operations | -478 | 0 | -523 | -59 | Profit 312 |
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