The ultimate store of value is said to be gold. But another asset class that is vying for the title is stamps, a $10bn global market. The GB30 Rarities Index – which tracks the value of Britain’s 30 rarest stamps – has delivered an annual return of 11% over the past 40 years. The only problem for investors is knowing which specialist varieties to snap-up and squirrel away.
If you’re not a keen philatelist, another strategy is to invest in the experts, such as Stanley Gibbons, the market leader in the stamp-collecting market. It focuses on UK, Commonwealth and Chinese stamps, along with collectibles such as historical documents, rare autographs/coins and commemorative/military medals. Traditionally, the UK has generated the lion share of sales (presently 63%). But of late there has been strong interest from Asia, particularly China, where prices at recent auctions have broken all records. This overseas demand helped lift Stanley’s pre-tax profits by 12% in the first half of the year, on sales up 25% to £15m.
Yet branching out internationally is only half of the firm’s story. Another big opportunity is pulling in internet sales, which currently contribute only 4% towards the top line. The firm’s management recognises the vast potential of this and are planning a major relaunch of the company’s website before the end of the year.
Stanley Gibbons (AIM: SGI)
Meanwhile, given current inflation worries, the company could also soon experience an uptick in activity from investors seeking to diversify their wealth into physical chattels. Stamps are a classic ‘non-correlated asset class’, meaning prices are driven largely by rich collectors competing for the best items. “It’s a mature hobby,” says chief executive Michael Hall. “Our average customer is in his 50s, is worth around £10m and puts around £50,000 into stamps.”
Another plus is the firm’s tax rate. It remains at a very efficient 10%-11%, reflecting the amount of business that is derived from its recently enlarged Jersey office, which caters for high-net-worth individuals.
The City is forecasting 2011 turnover and adjusted earnings per share of £29.6m and 17.3p respectively, rising to £31.5m and 18.9p in 2012. With net cash of £0.7m, the shares trade on a miserly price/earnings ratio of ten and offer a 3.2% dividend yield. I value the group on a 12 times multiple, which in turn produces an intrinsic worth of more than 200p.
The key negatives to keep an eye on are foreign-exchange risks, tougher online competition and the threat of possible future regulation across the industry. House broker Peel Hunt has a target price of 215p.
Rating: SPECULATIVE BUY at 166p (market capitalisation £42m)