De La Rue - The Double Centenary hangover

De La Rue: Market conditions have been tough for the company for some time, which probably played a part in Tim Cobbold’s thinking over his decision to move to UBM earlier this year. Printing money has been fiercely competitive in recent years, featuring over-capacity and irrational pricing. At the same time newer profit streams such as e-passports have not grown as fast as expected. Ironically in the age of contactless payment cards the cash processing business has been a rare spot of calm....for now. All this has culminated in a profit warning and dividend cut. For the year to March 2015 eps are likely to be around 43p on revised numbers, meaning a modest PE of 11.6x at the sharply lower share price of 480p. The interim dividend was cut by just over 40% from 14.1p to 8.3p. Although the only commitment is to review the final dividend at the finals next year, a similar cut for the full year would mean a total dividend of 25p for a yield of 5.2%. If net debt ends up around £115m then net debt to EBITDA could be around 1.2x, which looks comfortable. As long as trading does not deteriorate further then the 5.2% yield looks sustainable, even if the climb back towards last year’s 42.3p is likely to be a long-ish trek. For dividend growth lovers, none of this looks exciting but there is one extra element that may sway thinking. In 2011 French rival Oberthur failed in a bid for De La Rue in the £9 - £10 a share range. The current travails may well have suitors dusting off their files. Not a strong enough reason to buy perhaps, but maybe just enough to make battered shareholders hang around a little bit longer. (6^th October 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

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