Shares - - TALKING POINT -

You may won­der why we are say­ing to buy

De La Rue. Af­ter all, it is the world’s largest printer of ban­knotes in a world which is in­creas­ingly cash­less.

It also prints pass­ports, but ear­lier this year lost out to Dutch ri­val Ge­malto on a lu­cra­tive con­tract to de­sign and man­u­fac­ture the new blue Bri­tish pass­port.

The shares aren’t far away from their decade­lows of 2015, and to cap it all man­age­ment are un­der fire from ac­tivists in­vestors.

This last point is a pos­i­tive. It of­ten takes an out­sider to shake things up when a com­pany and/ or its man­age­ment is un­der-per­form­ing.

De­spite its trou­bles De La Rue is a very prof­itable com­pany. Ban­knotes and pass­ports need ex­tremely so­phis­ti­cated se­cu­rity fea­tures to pro­tect against forgery, and that kind of tech­nol­ogy is very valu­able.

Its cap­i­tal em­ployed is ac­tu­ally neg­a­tive be­cause it has very low fixed as­sets and its gets its cus­tomers of­ten pay up­front.

Its earn­ings yield is al­most 22% as earn­ings be­fore in­ter­est and tax (EBIT) was £123m for the full year to March 2018 and its en­ter­prise value is £564m.

In­vestor sen­ti­ment is neg­a­tive yet an­a­lysts are uni­formly bullish with an aver­age 600p price tar­get. We think this is a good one to buy, al­beit not for im­pa­tient in­vestors. (IC)

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