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VALUE INVESTING
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hiAnother possibly interesting non-pyad style value share. Quite a biggie, De La Rue (LSE: DLAR) is involved in security printing and cash handling equipment. In fact, it prints 150 national currencies, plus stamps, passports, driving licences and similar products. The company is quite a famous old name that has been going through some financial re-engineering over the last year or so, issuing new share capital for old and cancelling preference capital. A number of underperforming subsidiaries have been sold off, and new investments made in related businesses. Often this kind of thing is the cause of a value turnround; when successful, of course. Here are the usual fundamentals: Not an asset play, therefore. The share price has recovered very strongly from a low point of around 130p in 1998 when the company had been going through a bad patch. Earnings per share (EPS) had been collapsing rapidly over the few years previous to that, from a normalised 50.0p in 1996 down to 18.1p by 1999. No doubt the subsequent reorganisation was in direct response to the failing performance over those years and a recovery in EPS has become apparent in the 2000 figure of 27.7p. The strong recovery in the share price has been directly on the back of the underlying EPS rise. The question is whether the recovery still has some decent mileage left in it. Let's see what the directorspeak says. In July at the AGM, the chairman commented that "I am pleased to report that as expected, sales and operating profits from continuing operations for the first quarter are ahead of the same period last year." Quite encouraging I'd say, up to a point. However I detect a slight reservation in the use of the expressions "operating profits" and "continuing operations." In directorspeak, unlike the true faith of accountancy, "operating profits" is the figure well up the P&L account, before all sorts of nasty but actual charges like interest, tax and exceptional items are deducted. Value players, just like the accountants that we resemble in so many ways, are interested in the bottom line, in EPS, and are somewhat cynical about references to "operating profits." Similarly the "continuing operations" reference tells me that there may well still be some losses hanging around from discontinued operations, following the reorganisation. Translating the DS into English, it reads to me something like "the reorganisation is having the right effect, but there is still some crap floating around from the old days which may have the effect of causing 2000 EPS to be little changed on 1999." Now if I am right, this may indicate that when they finally get rid of the crap, and if the reorganised business continues to perform well, then the following year may well be the one to out some value here. More importantly, it is enough only for the market to think that for the share price to show some performance, given the present fairly undemanding P/E. The yield is not particularly high: well above the market, but for a value share nothing to get excited about. One for the patient, I'd say. I wouldn't buy it, but then there are hardly any shares that I would buy. I feature it here because some investors with a different view may find it attractive. It is an interesting niche business in my view and a fair size too, a member of the FTSE 250. Given the choice, I personally would always go for larger value shares over smaller caps. Recent broker comment rates the shares a buy or a hold, although I wouldn't necessarily take much notice of that, there is no powerful consensus. It would be better if they all rated it a strong sell, then the old contrarian urge would set in.
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