De La
Rue: The
40% annual dividend cut had been widely expected since the interim was cut by a
similar amount. This is symbolic of what a tough couple of years it has been
for De La Rue, but the arrival of new CEO, Martin Sutherland, from security
specialist Detica (now part of BAe Systems) is a new chapter. It doesn’t look
as if there are any quick fixes though. These annual results, to 28th
March 2015, show revenues down 8%, pre-tax profit down 25.4% (at £57.7m) and
eps down the same at 45.3p, with margins hit by pricing pressure in the
currency (banknote) business. This all pretty much in line with reduced
expectations after last autumn’s warning, but are hardly pretty. A small mercy
is that they did retain the Bank of England contract, for 10 years, the loss of
which would have been catastrophic. Despite this the order book at year-end was
£243m, down sharply from last year’s £307m, with pricing still under
industry-wide pressure. The group is now embarking on a major cost saving
initiative, but the proceeds are ear-marked to be re-invested in the business
rather than flowing to the bottom line. Although
net debt was up £21.1m at £111.0m, this is manageable in the context of
operating profits of £69.5m, with cash conversion a healthy 123%.
Looking ahead it
will be a tough ask to hit the 45p of eps in FY2016, but that would be a PE of
11.2x at today’s soggy 504p. The stated aim is to pay 25p of dividend again in
FY2016, which would be a yield of almost 5.0%. So far, the new CEO’s strategic
review has concluded that the group’s shape and scope is appropriate, albeit
with a future emphasis on “higher growth and more profitable markets”. So that
is less bank note printing and more security products/features/ID services. It
is not stated how long this tilt will take to effect, or what short term impact
on the bottom line there will be, (so 45p of eps in FY2016 may be toppy?).
However, this could be somewhere near the bottom for the group’s fortunes and
if the reduced dividend holds, then the yield is a comfort. There also remains
the long-term strategic attractions of De La Rue to a bidder. So having been
lukewarm on the shares last October at 480p, I would now be more optimistic at
current levels. (Neil
Cumming, 27th May 2015)
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. www.dividendpower.co.uk
or e-mail at info@dividendpower.co.uk Twitter:
@DividendPower
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