The Motley Fool

Is the De La Rue share price low enough to buy?

A large one-day drop in a share price always flags up a potential opportunity for me – after all it can only be either a fair reflection of an issue, or an overreaction. Unfortunately for bank note maker De La Rue (LSE: DLAR), yesterday’s 20% fall in its stock doesn’t quite seem the chance I would hope for.

Bad day, bad two years

Tuesday’s price drop came after its half-year results showed ever mounting piles of debt for the company, which puts pressure on the company in terms of some of its banking covenants. What’s more, De La Rue suspended its dividend, which though probably a sensible option, is never what investors want to see.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

The news comes as the company already suffers from a bad year or two – profit warnings in October and May, as well as a Serious Fraud Office investigation in July, leaving its shares down about 70% for the past half-year alone.

The company has been making efforts to mount a turnaround, seeing a new chairman, CEO and financial director taking up positions in recent months. Chief executive Clive Vacher, who has only been in place for about seven weeks, is currently overseeing a strategic review to cut costs and boost cash flow.

By his own admittance however, these changes at the top have brought about “inconsistency in both quality and speed of execution” for its turnaround efforts, most notably in its currencies business.

Unfortunately for De La Rue, it is not just the past six months that have seen it suffer – troubles have been building for two years. The company took both a financial and PR hit in 2018 when it lost the contract to print British passports to a French firm. Matters were made worse when the Venezuelan central bank refused to pay De La rue what it owed them.

Old industry in a modern world

Unfortunately for De La Rue all signs suggest things may get worse yet. Its latest numbers show revenue in its currency division fell 30% for the half year, which the firm suggests was caused by “cyclical overspill demand” from central banks, but it may in fact be part of a growing trend.

The simple truth is the use of credit and debit cards, as well as bank payments and even wireless phone payments, is becoming far more widespread, while cash is being used less and less.

As with many other mainstay companies in old or dying industries, the use of paper money seems to be a business on the slide. With currency printing still representing De La Rue’s core business, it is hard to see how it could make up the shortfall through its security and counterfeit division (though it may eventually be able to do so).

It seems strange calling cash a dying business, but consider it like this — if you had to place a bet on how much paper cash will be used in 2025, would you bet on less than today, the same as today or more than today? With that in mind, a cash-printing firm is going to have a lot to overcome in the next few years.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.