You don’t usually see an art and antiques dealer sized up by stock touts but London’s Mallet is traded on the exchange and its rival Partridge fell into bankruptcy administration which has investors pricing Mallet for the same fate. At least one speculator, however, sees good news in Mallet’s misery:

A year ago the world’s most expensive chair sold for £19.6 million at auction. Yet at its current share price of 61p, investors value Mallett at less than half that price. That takes into account everything it owns: Meta, an arty furniture maker it launched two years ago; James Harvey British Art, a gallery; and Mallett’s 60% stake in Hatfields Restoration.

The market for fine and decorative art fell by 26% in 2009, as Partridge Fine Arts, a rival dealer, went into administration. In 2008 Mallett wrote off 17% of the value of its stock because of falling prices, and postponed a plan to move from its expensive showroom to a less salubrious part of Mayfair because of crashing commercial property prices.

To cut costs, Mallett has shed staff, cut travel and scaled back Meta, and it is selling more items on consignment on behalf of the owners, so it doesn’t have to spend as much buying stock.

It may have to survive on gruel for a while longer. Selling items on consignment earns the company lower profit margins than selling its own stock. Moreover, customers are more discriminating. Instead of kitting out whole houses, they want individual items.

Richard Beddard goes on to point out that for all of these bad things the outlook is good for Mallet because it is not weighed down with debt and still generates decent cash flow.

Bad News is Good News for Mallet Investors (Interactive Investor)