A Licence To Print Money

Stephen Bland casts his eye over another potential value share.

This week this weak pun of the title refers to De La Rue (LSE: DLAR), a share in which I have a stake. Apologies for the obvious and poor titular wordplay because it has probably been done to death by commentators on De La Rue, but I tried to make up for it with the trick homophonic repetition in my first four words.

Here's the usual fundies:

On the face of it then, not a massive value share for several reasons. Negative tangible assets, a P/E which is not especially low compared with the market and it has net debt though only a very modest amount relative to its capitalisation. The yield though is attractive and forecast to rise.

So what then would attract someone like me, who would rather stick a red hot poker where the sun don't shine than buy a non value share, to De La Rue apart from the decent yield and low debt? Well for a start, good yields that appear sustainable and rising turn me on something rotten these days though that's possibly an age thing because little else does. That's the case even for a short-term value play.

Cashback

Another value signal is the reorganisation which occurred last year when a major division was sold and a cash return of £460m made to shareholders. I've found that such disposals can be an indication of a new drive forward by a business but if I'm right, this has not really been recognised in the share price which is cruising not far off the 52-week low so that's another reason why I think there may be a some mileage here.

De La Rue's business is principally currency printing and other secure products. They have for example won recently the UK passport contract. Not a business in which you'll find too many other quoted shares and it is probably that which makes it interesting, after it has passed some quantitative value tests. Long time readers of my stuff will be aware that I usually have little interest in the actual activities of my plays because value is essentially a numbers game, whatever the business in which the company is engaged. But occasionally a business does actually appeal to me, provided of course it seems cheap and this is one such case, though I would have to agree that it's not being given away.

Limited downside

I think too that the downside may be fairly limited. Not by the numbers particularly because it has no net tangible asset backing, though the decent yield is a bit of a prop. More though because of the apparently bright future. Directorspeak backs this up with the comment in the 2009 results that:

"As indicated in March, De La Rue entered the year with good order book coverage across its businesses which is expected to continue despite the uncertain global economic environment. the Board has confidence in the outlook for the current year"

If that comment turns out accurate, then the shares may be resistant to slipping much, barring a general market fall, and if they do, then they would be even more attractive assuming the fundies remain unchanged. It's the growing eps and general warm glow around the company that provides the downside damage limitation here. Not as good as tangible asset backing of course, nothing much is, but it gets to me.

Dividend income apart, this share smells good and although that part of my investment thinking is not quantifiable or might even seem faintly barmy as a purchase criterion to some, I do think it is priced too cheap and is set for a worthwhile rise in the value player's time frame. Summing up then, I see De La Rue as a nice odour play with a sufficient amount of the more palpable value stuff to make it a buy and this one's a money and mouth job.

More share ideas from Stephen Bland:

• I'm Still Holding IG Group
• Value Pick: MS International
• Value Pick: Where There's Mucklow...

Stephen owns shares in De La Rue