Shares in Royal Dutch Shell (LSE: RDSB) and Stanley Gibbons Group (LSE: SGI) have fallen heavily this year, while Auto Trader Group (LSE: AUTO) has climbed 43% since the group’s IPO in March.
In today’s article I’ll ask whether any of these stocks are a buy in today’s market.
Stanley Gibbons
Rare stamp and collectible group Stanley Gibbons said today that pre-tax profit fell by 70% to just £0.4m during the first half of the current year, while net debt rose to £17.0m, from £3.3m one year ago.
The interim dividend has been cancelled and the final dividend placed under review.
According to Martin Bralsford, Stanley Gibbons’ chairman, management focus on acquisitions and online growth has meant that the firm’s core stamp business has been neglected.
The figures certainly suggest a problem. Stanley Gibbons’ like-for-like sales fell by 21% to £21.6m during the first half of the year. Sales are expected to improve during the second half, as the group’s stamp auction calendar is busier during this period.
Are we at the bottom?
Shares in Stanley Gibbons have fallen by 65% so far this year. Supporters of the stock point out that the firm’s shares now trade close to their net tangible asset value of 90p per share, and that all stock is carried on the balance sheet at cost.
In theory, Stanley Gibbons should be able to generate cash by simply selling off some stock and reducing inventories. The risk, in my view, is that the market for rare stamps may be softening. Stanley Gibbons’ gross profit margin has fallen from 60% to 48% over the last year. If this trend continues, the firm could struggle to raise cash quickly enough.
In my view, it may still be too soon to buy.
Is Auto Trader like Rightmove?
Rightmove has been an incredible success, thanks to its high profit margins and its stranglehold on the online property listings market.
Auto Trader appears to share these characteristics. The company said today that its online audience is now five times larger than that of the nearest competitor. Operating profit rose by 23% to £83m during the first half of the year, giving an amazing 60% operating margin.
The big difference between Auto Trader and Rightmove is that unlike Rightmove, Auto Trader has a significant amount of debt. However, the firm’s strong cash generation means this is falling fast. Net debt fell by £70m to £457m during the first half of the year.
Auto Trader currently trades on a 2015/16 forecast P/E of 32. This is pricey, but if the firm can maintain its current performance, then in my view shareholders could see further gains.
Play safe with Shell?
Oil companies are not the flavour of the month at the moment, but at around 1,600p, Shell trades on less than 12 times 2016 forecast earnings and offers a forecast dividend yield of 7.6%.
I see the shares as a long-term income buy. Shell’s planned acquisition of BG Group and its focus on gas and fewer, larger oil assets should drive attractive long-term cash flow, in my opinion.
Oil is unlikely to stay below $50 per barrel indefinitely, and I believe it will be closer to $60 by the end of next year. Now might be a good time to top up with Shell.