There is a good chance you have never heard of De La Rue (LSE: DLAR) though no doubt you have used its products. The firm is responsible for printing, among other things, UK banknotes, and today saw its share price plummet more than 30% after it issued a profit warning – just the latest in a long line of troubles for the firm.
The bad news keeps coming
The company said today, that full-year profits would be “significantly lower” than expectations, having already warned in May that the number will be lower than last year. Though vague on excuses, a look back over the last year or so explains why.
In July, the Serious Fraud Office opened an investigation into the company regarding suspected corruption in South Sudan – hitting the stock by about 15% at the time. In May meanwhile, the company was forced to take an £18m hit after the Venezuelan Central Bank refused to pay its bills. Last year, De La Rue lost its contract to print post-Brexit British passports to a French competitor.
A perfect storm, it seems, and all told, since the start of 2018 the share price is down about 80%, which led the firm to bring in so-called “turnaround specialist” Clive Vacher as CEO, in hopes he can change the company’s prospects. Mr Vacher is conducting a “detailed review” of the business, for which the market will be updated when De La Rue reports its first-half results in November.
Cheap enough to buy?
With the loss of the UK passport contract, De La Rue has been forced to focus instead on two key areas – currency and authentication. The authentication business, which passports are technically part of, is increasingly moving towards corporate and government anti-counterfeit measures, as well as VAT tax anti-evasion.
The currency arm worries me more, however. The simple fact is that people are using less and less cash, and have been for a while. Credit and debit cards are in wider use than in previous years, while online retail is becoming ever more dominant. The current low interest rate environment is no doubt adding to the troubles, as paying with credit cards becomes cheaper.
De La Rue prints about a third of the world’s banknotes, but both developed and developing economies are to one extent or another moving away from cash transactions and towards direct transfers and credit/debit cards.
Dying Business
Though it is strange to be talking about cash in the same way as old industries, in many ways that is exactly what it is. While the online revolution is changing the shape of retail, it is also changing the shape of payments and transactions.
The simple fact is, printing banknotes is at the very least a limited, if not dying, industry, and is only likely to get worse in the long run. I am curious to see what Mr Vacher’s turnaround plan will be, and if it looks solid, the very low share price will be an opportunity. For now though, I just cannot see a reason to risk investing.
