It has been 18 months since we last looked at shares in this money printer. Back in September 2012, they cost 1,050p each and looked expensive on over 18 times forecast earnings – too punchy for us.
The company was battling against too much capacity in the paper banknote market, which had squeezed its selling prices. Shareholders were to be kept happy with a big cost-cutting plan that was expected to take trading profits from £60m to £100m in just over two years.
A lot has happened since then. The firm will fail to hit its £100m target – it will be nearer to £90m instead – after issuing two profit warnings.
On top of that, the chief executive decided to jump ship. CEOs have developed a canny knack in recent years of getting out when there’s nothing more to gain. Investors are right to be cynical. So it’s no surprise that De La Rue’s (LSE: DLAR) shares have fallen back.
However, although times are tough for the company, it is still the world leader in printing bank notes and has good potential for profiting from the introduction of plastic ones. It could also go on to create a decent business with passports, although this is taking some time to develop.
The shares are now 804p and have lost a lot of their former frothiness. At 13 times forecast earnings per share and a 5% yield, they look much better value now. Profits may not grow for a while and there is some nervousness about the award of an upcoming contract from the Bank of England, but the dividend looks safe for the moment.
In 2010, French firm Oberthur Technologies failed with a 905p per share bid for De La Rue. While no-one is currently predicting that it’ll return soon for another go, when industries have too much capacity one of the ways of dealing with it is through mergers and cost cutting. This can help prices and profits for those companies that remain.
Verdict: a speculative buy