As a value investor, I’m always looking out for undervalued shares. Rather than go digging among small-cap stocks and penny shares, I prefer to buy into blue-chip FTSE 100 and mid-cap FTSE 250 firms.
But while scanning the list of the London market’s biggest fallers this week, I spotted one penny share that has fallen a long way from its glory days. Once a proud FTSE 100 member, this British company is now a mere shadow of its former self. But what if it springs back to life?
From FTSE 100 to a penny share
This ‘fallen angel’ is De La Rue (LSE: DLAR), a company which I’ve known of for decades.
Founded in 1821, this 202-year-old business prints bank notes, as well as providing physical and digital secure solutions to governments, central banks, and businesses. At the end of last year, the group employed almost 2,200 people and generated revenues of over £375m.
Alas, De La Rue (‘from the street’ in French) has seen its stock collapse in recent years. At the current share price of 31.85p, this business is valued at a mere £62.3m. At its peak, this firm was valued in the billions of pounds.
What’s more, this penny share can’t find a floor under its share price. From its 52-week high of 111p on 9 September 2022, the stock crashed to a lifetime low of 30.64p on Monday (19 June).
Here’s how this slumping stock has performed over seven different timescales:
| One day | -3.0% |
| Five days | -8.6% |
| One month | -20.4% |
| Year to date | -61.2% |
| Six months | -62.0% |
| One year | -62.0% |
| Five years | -94.0% |
Not content with falling more than a fifth in one month, this stock is down more than three-fifths over both six months and one year. Even worse, it has blown up almost 95% of investors’ capital over five years. Blimey.
Could this be a recovery play?
As I explained earlier, I prefer buying large-cap value stocks to penny shares. But maybe, just maybe, there is some deep value lurking inside De La Rue’s equity?
Unfortunately, the group has delayed the release of its latest full-year results (ending 25 March 2023) from 31 May to 29 June (next Thursday). This was done so the company could complete its search for a new chairman, who duly took over on 18 May.
But one thing stands out: De La Rue’s revenues have shrunk in recent years. They dropped from £564.8m in 2018/19 to £375.1m in 2021/22. That’s a fall of more than a third (-33.6%).
Another warning sign is that group net debt jumped by more than a fifth (+21.1%) in six months, hitting £86.5m at the half-year point. That’s a multiple of the company’s current market value. Also, De La Rue hasn’t paid any dividends since its 25p cash payout for the 2018/19 financial year.
Am I brave enough to buy?
For me, this stock is a binary bet, but will it be boom or bust? Right now, it’s too hard to say, so I won’t buy this penny share today. That said, I eagerly await the company’s update next week, when its shares might surge or slump!
