Seeking Alpha
Independent research, dividend investing, long/short equity
Profile| Send Message|
( followers)

An outsized dividend, rock-solid balance sheet and the growing potential for an operational turnaround make up for several quarters of lackluster performance at this small-cap play.

Santa Ana, Calif.-based Collectors Universe Inc. (NASDAQ:CLCT) may not be well-known on Wall Street, but its various operating units are distinguished in the collectibles industry. Founded over 20 years ago, the $125 million market capitalization company provides authentication and grading services to dealers and collectors of high-value collectibles such as coins, sports cards, autographs and currency. Collectors Universe is also a publisher of various collectibles price guides and is the operator of the Expos Unlimited collectibles trade shows.

In the fall of 2005, Collectors Universe entered the diamond grading and authentication business with the acquisitions of Gem Certification & Assurance Lab [GCAL] and a complimentary company called Gemprint Corp. Then, in August of last year, Collectors Universe broadened its focus on this new sector with the acquisition of American Gemological Laboratories [AGL], a provider of grading and authentication services for colored gemstones. While Collectors Universe’s new diamond and gemstone grading businesses are filled with promise, they have severely depressed the company’s profitability over the past two years and left investors skittish.

Collectors Universe management now claims that it intends for its diamond grading business to be operating at or near cash-flow breakeven by this holiday season. It expects its younger colored gemstone grading business to take longer to turn the corner. An end to the cash-burning ways of its jewelry grading businesses can’t come soon enough for Collectors Universe investors.

For the fiscal year ended June 30, Collectors Universe saw its revenue increase nearly 10% to $40.5 million (4% of this revenue growth was organic), while posting an operating loss of $0.74 million, or $0.09 a diluted share, compared with an operating profit of $3.4 million, or $0.39 a diluted share, a year earlier. The full-year loss was driven by an increased operating loss of $4.1 million by the jewelry business. Operating cash flow for the year was $3.5 million. This compares with annual cash flow of $7 to $8 million for Collectors Universe from its traditional collectibles businesses before it decided to broaden its focus to the jewelry segment in late 2005.