With its strength In banknote printing, it was ironic that De La Rue (LSE: DLAR) traded as a penny share this time last year.
What a difference a year makes. During that period, the De La Rue share price has jumped an incredible 163%. The expert in printing money has shown that it can print investor returns too.
With an announcement today (30 May) that it may be open to breaking itself up, could De La Rue unlock even more value than is suggested by its current share price?
Troubled history
The company says that increasing scale and capabilities in both of its key business divisions could help it create more value. It also wants to cut debt and increase its financial flexibility.
It has therefore been exploring the option of reshaping itself. While details are vague for now, that could include selling a division to an outside company. It has received proposals and also expressions of interest in both of its divisions. For now though, nothing has been agreed. There is no guarantee that any deal will materialise in future.
This follows a very trying few years for the company. It has been growing its authentication business and now holds multi-year authentication contracts with expected future revenues of £350m, over triple the whole company’s expected revenues this year. But currency printing has had a torrid few years, due in part to declining use of cash in many markets.
Last year saw the company’s revenues decline for the fourth year in a row. It also swung to a sizeable loss, and has not paid a dividend since 2019.
While the current management has been working hard to set the business on an even keel, it continues to face challenging market conditions.
Possible further share price increase
Despite shedding its penny share status and showing stellar growth over the past year, the longer-term picture is not pretty. Over five years, the shares are down 63%.
I think the strategic review makes sense. If it does not change anything, there is no reason the business would be in worse shape than without the review. If, on the other hand, a bidder emerges to take over part or even all of the business, the shares could increase further from here.
That depends on what any bid is priced at though. There may end up being no attractive bids. Meanwhile, I do not feel confident about the fundamentals of the business. It has experienced a very tumultuous few years and I think there are more risks ahead.
Those include the cost of fixing its balance sheet and ongoing challenges in the currency market as it experiences structural decline in many areas.
I did not buy De La Rue when it was a penny share for those reasons – and I am not buying it now either.
