SGI

The collectibles group sees opportunities in a falling market

by John Marshall

Stanley Gibbons (SGI:AIM) 166p, Stop loss 132.8p

Shares summary

The group rides a rising interest in stamps as an alternative investment. Recent interims were encouraging. Good medium-term prospects.

Business:

Deals in stamps and other collectibles. Developing a collectibles website. Expanding internationally from its UK base.

Vital stats:

Market value: £41.6 million

Historic PE 2007: 12.0

Prospective PE 2008: 9.1

Prospective PE 2009: 6.9

1-month relative strength: 17.3%

1-year relative strength: -22.0%

Yield 2008: 3.0%

NMS: 2000

Spread: 3.6%

Alternative investments gain followings in a bear market, so it is no surprise stamps are becoming popular. The Stanley Gibbons Rare Stamp Index has risen by 39% in the past year and some 250% in the past decade, outperforming the FTSE 100 and the housing market.

The Stanley Gibbons (SGI:AIM) catalogue is the philatelist’s bible. With the strongest brand in the sector, Stanley Gibbons could benefit most from more international interest in stamps.

The recent interims showed the group’s immunity from the woes of so many retailers. Turnover was up by 12%. Philatelic trading and retail sales were 16% higher. Within this, sales to investment clients and high-net-worth collectors rose by 43%. Sales even rose at the retail store in central London and web-generated sales more than doubled from £1.1 million to £2.4 million.

Diluted earnings improved by 23%, helped by a lower tax charge, reflecting the rise in the Guernsey-based profits and tax changes there, so the group’s overall tax rate fell to 12%. Freddie George of house broker Seymour Pierce forecasts a rate of 16% for the year.

Rhys Williams of independent broker Arbuthnot saw the interims as a ‘solid set of numbers’. He recommends the shares as management has a ‘number of very defined growth strategies to take the company forward’. Chief of these is improving the website further. Second, the group intends to translate the website into several foreign languages to target the Chinese, Indian and Russian markets. These changes should be completed by the end of this year.

Wider horizons

Stanley Gibbons already has strong sales to clients in the Far East – especially China, where stamp collecting was illegal until recently, and is now seen as fashionable. The company is seeking to tap into this increased international interest by appointing agents in Hong Kong, japan and Canada. It is in discussions with other potential agents.

The group is also in discussions with others about launching a regulated investment fund, which will hopefully come on stream in 2009. It will update the market on these talks with its year-end trading update in December.

With cash reserves of just over £1 million, Stanley Gibbons has indicated the present market turmoil has led to ‘some interesting opportunities’ in business acquisitions and large inventory. The company is evaluating opportunities as it uses its strength to take advantage of the weaknesses of others.

Although the company has the authority to purchase up to three million shares, it has emphasised it has to balance this against the need to retain liquidity to finance business growth. Given the opportunities in the market place, it is unlikely to engage currently in significant buybacks – especially as the interim dividend was increased by 14%.

For the year as a whole George forecasts earnings of 18.3p, rising to 24.2p next year – placing the shares on a PE of 9.0 falling to 6.8 next year. This rating is too low in view of the opportunities facing the company and its strong brand.