Stanley Gibbons Says Innovation is the Key to Future Prosperity

The newly refurbished store at 399 The Strand is a Mecca for stamp collectors.

The building is also home to Stanley Gibbons (LON:SGI), which is to philately what Harrods is to retailing. It is world renowned and trusted.

That it is quoted on the stock market may come as a surprise to the many who know the Stanley Gibbons name, but don’t know the company particularly well. 

It’s been listed on AIM since August 2000 where it jostles for attention with the diggers, drillers and small-cap drug developers that make up the bulk of the junior market.

And it is a rarity among these seat-of-your-pants growth stocks: it actually makes a profit and pays a dividend. 

Granted it could be perceived to have a rather dusty and staid image. However the truth is Stanley Gibbons is actually a rather innovative business.

A case in point is the soon-to-be-launched e-commerce site and internet portal. It will feature a database of 3 million stamps, a philatelic library of articles dating back to the 1890s and a social networking function.

But it is not there to look pretty – it has been designed to make money.

Users will pay a subscription to access parts of the site, while the group will also offer and online trading community similar to Amazon, online stamp authentication and auction services.

Stanley Gibbons will charge a 5 per cent commission and the same to verify that a stamp is what it is claimed to be.

“It is worth it because the collector has the comfort of knowing the stamp is correct,” chief executive Michael Hall tells Proactive Investors.

It also creates a far more liquid marketplace as the collectors know what they are buying. 

The plans for the website are just part of Hall’s ambitious blueprint for Stanley Gibbons.

The interim results revealed the group has made a very successful foray into China, not a nation you would think was big on that very 1950s, home-counties past-time of philately.

There around 20 million collectors, Hall reveals. However instead of rare stamps, many Chinese buy stamps as souvenirs or give them away as corporate gifts.

Currently all the rage is the 1980, year of the monkey stamp. “It is the first ever new year anniversary stamp in China. It is red and has the number eight on it.  It’s a combination of things that fits in with folklore and superstition that makes it a prized possession,” Hall explains.

“China is like no other stamp market. In China there are 20 million collectors of fairly common stamps. 

“8 million of these (1980) stamps were printed that can sell for £1,500 each. This alone gives a massive potential market.” 

Hall wrote of his exploits in one of the company’s regular newsletters and received orders for £1 million-worth of Chinese stamps. 

“We recommended (investors bought) 85pc of the classics as a value investment and 15pc of these modern stamps as a momentum investment which we think may become overheated,” he explains.

And we hit on a crucial point here: stamps are very often bought as investment and the returns are very impressive. 

Stanley Gibbons publishes the GB Rarities Index, which consists of 30 of the world’s most rare stamps.

It is to philately what the FTSE 100 is to investment – it provides an objective measure of the market for stamps.

In the year to date the GB30 is up 7 per cent (the FTSE 100 is up 3 per cent), while last year the advance was a more modest 2 per cent. However in 2008, when there was carnage on the equity markets and the blue-chip index began its descent towards 3,500, the GB30 rose 39 per cent. 

“Look at the past three years alone and you’ll agree that returns were very strong – particularly as everything else was losing money,” Hall says. 

“In the longer term – you can go back 50 years – and you are looking at a 10 per cent plus annual compound return. And at no point ever have the kind of rare stamps were offer to investors gone down in price.

“The worst year performance was up half a percent point. Compare that with losing 40pc on BP – a supposedly safe investment – and I think you’ll agree that stamps have done alright.”

Prices of these rare issues are supported by some very keen collectors. 

Hall explains: “The price goes up because the people are chasing stamps that are in short supply.

“Sometimes the people chasing have waited their whole lifetime to get their hands on a particular stamp because it is so rare. 

“Why don’t stamps go down in price? Well, because the people who own the rare stamps cherish them. There is a well known expression in the stamp world, “the 3 D’s”, that is death, divorce and debt. Generally, these are the three events that result in the sale of a collection. So there is a shortage of supply in the market.

“This relative illiquidity means in times of panic it is not the asset you will offload - because you can’t just sell the stamp the next day. This illiquidity is your friend when people become irrationally panicky.” 

The company does put together portfolios of rare stamps which is sells through offices in Jersey and Guernsey.

Their success has been something of a revelation to Hall who reckons Stanley Gibbons might at some point in the future open investment operations in world money centres such as New York, Hong Kong, Dubai and Zurich.

Hall is also looking at potential acquisitions. The company announced earlier this month it is buying stamp collector N&M Haworth for £300,000 and more recently the acquisition of the Benham first day cover business for £1,500,000.

And there are possibly more in the pipeline. Hall wants to broaden the Stanley Gibbons offering into other collectables.

The interim results revealed the sale of autographs, memorabilia and records grew by 25 per cent – suggesting there is merit to broadening the group’s base in this way.

However Hall doesn’t want to stray too far off piste. “I’m only looking at companies that will complement and strengthen our overall brand offering,” he says.

“Also we may acquire specialist skills in areas that make our business scalable. So let’ s just say the US takes off. Well, then we will need a US specialist.”

Hall is quite open about how much he has to spend, but he also realises it may be fiscally more prudent to reinvest the money into the business, where the returns might be better.

“Because we get a 20 per cent return on capital from investing cash in our business I do have to buy at a low price.

“We are working on a number of deals and there are offers out there.

“We can comfortably buy businesses of £2 million every year out of operating cash generated and are looking at acquisitions with values in excess of £10 million acquisition, although would require funding to progress these.”