Right now, the company has a market-cap of £206m, but it’s about to raise £300m in cash by selling off part of its business. Is there a catch, or is this a golden opportunity for investors?

What’s the catch?

De La Rue’s business has two parts to it – an authentication unit and a currency unit. The first one provides security technology for identity documents and the second one prints banknotes.

The company has agreed to sell off the authentication division to Crane NXT for £300m. That’s more than the entire market-cap of the UK company.

In theory, De La Rue could return all of this to shareholders immediately thereby paying a dividend that’s higher than the share price. But it’s not quite so straightforward.

The company has some liabilities, including net debt of around £90m and a further £52m in pension obligations. These might well use up some of that cash. 

Even so, De La Rue should find itself in a position of having more cash than debt after the sale of its authentication business. And that could put investors in a very nice position.

After clearing the balance sheet, I expect the company to be able to return some of the sale proceeds to shareholders. And they would still have the banknote business going forward.

What comes next?

Investors might think banknotes are a dying business. And it’s definitely true that a lot more transactions are happening by card or digitally. 

Nonetheless, there are a couple of reasons things might not be as bad as they look. One is that a shift to replacing cotton banknotes with polymer-based ones means new money needs printing. 

Another is inflation – on a global scale, not just in the UK. The value of money declining is likely to mean more of it is needed, which is a benefit for the business that manufactures it.

It’s worth noting that De La Rue is also looking to sell the remaining banknote division. And that could make a quick return regardless of the long-term outlook for physical cash.

What that might raise is uncertain, but the firm’s largest shareholder values the banknote unit at £150m. That could be a great result for investors with the company’s balance sheet clear.

All of this means investors don’t necessarily have to think banknotes are the long-term future of money to see value in De La Rue’s shares. And that makes them an interesting proposition.

Is this an opportunity?

When I look for shares to buy, I try to find companies that are going to generate a lot of cash relative to their market-cap. Usually, this means businesses that have strong growth prospects. 

Cases where a declining business can provide a big reward are rarer. But De La Rue might be an example of this, which is why I’m considering making it part of a diversified portfolio.

The post This under-the-radar FTSE stock is set to print money in 2025 appeared first on The Motley Fool UK.

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.

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The potential to print profits

In early July, I flagged up the 46% jump in a week for De La Rue (LSE:DLAR). The currency printing and money authentication business released results that were better than the market was anticipating. Added to the mix were comments that it’s seeing a recovery in demand in some divisions.

Over the past year, the stock is still down 45%, so there’s plenty of potential to rally. It’s also worth noting that the share price has traded above 100p during the past year, even though it’s currently at 45p. This is one reason why the company is on my watchlist.

Financial results haven’t been the best recently but I think there’s a strong chance the worst is behind it following the full-year results from last month. New initiatives could add significant long-term value. This includes new Government Revenue Solutions projects with the Middle East, including Bahrain, Qatar and Oman.

The need for cash in society is dwindling, which is an ongoing concern for De La Rue. Yet revenue is growing in other divisions, such as authentication. If the company can continue in the pivot to a more sustainable business model, I don’t see why the pessimism around the stock can’t evaporate.

Waiting for a move

The other penny stock that I’m looking at is Scancell Holdings (LSE:SCLP). The stock has fallen by 24% over the past year, with a share price of just 9.5p.

The company is a clinical stage biopharmaceutical company. Ideally, it needs to be able to take products from research stage, through clinical trials and get them all approved in order to generate sizeable profits.

Currently, the business is loss-making. It doesn’t have any revenue coming in through the door, but has sizeable expenses to fund the research and trials. Although this is a risk, it’s the same practice that all in the same business line go through.

Yet on the other hand, it has £24m cash on hand (as of the latest report). It burned through £4.4m in the previous six months, so it has a big buffer to keep running operations for a while.

In the meantime, I believe it has a good shot at taking either Modi-1 or SCIB1 products to the market in 2024. Modi-1 had a recent 44% disease control rate with test patients of aggressive cancer that had exhausted other options. This shows me that the potential take-up of the product if it reaches the market could be very large. As soon as investors get a smell that this could be the case, I’d expect the share price to rally.

I’m considering investing a small amount of money in both stocks in coming weeks. I’m using a small amount due to the high risk involved. Yet if either replicate the performance of RC365, even a modest sum would be able to generate a healthy return.

The post I’d forget RC365 shares! I think these 2 penny stocks could be next appeared first on The Motley Fool UK.

It might still be down 39% over the past year, but has there been a change in the tide for the bank note printer?

Results not as bad as expected

The main reason for the jump last week was the release of the full-year results. The financial year for De La Rue runs March-March. On the face of it, some investors might be puzzled as to why the results were taken as a positive. After all, the company went from a profit before tax last year of £24.2m to a loss this year of £29.6m. Revenue dropped by 6.8% on the previous year.

Yet for those that have been following the stock for a while, these results actually weren’t as bad as they could have been. The business has provided several downbeat trading updates over the past year. The half-year results already posted a loss. As a result, the share price had materially fallen since early 2022 as investors factored in the likely disappointing full-year results.

With all of that in mind, one element of the rally last week was simply the fact that results weren’t as terrible as they could have been.

The outlook is more positive

Another factor that helped buoy the stock was some of the comments from the CEO. He said that “we have witnessed encouraging signs of recovery with strong bid activity, a positive win rate, and
the significant majority of FY24 banknote print volume already contracted.”

This could mean that over the course of the next year, the financial performance could improve. Since the stock market is forward looking, people buy a stock based on how it could perform in the coming years. If a new investor was analysing De La Rue right now, the past is done and it’s all about how the business recovers from here.

There’s a caveat with focusing on the future though. Financials might improve, but I do note that net debt has been increasing and could continue to do so. It now stands at £83.1m (up 16.8% versus last year). The problem with high debt is that the interest expenses on it need to be paid regularly and can negatively impact cash flow.

Long-term viability?

When it comes to De La Rue, I’ve always been a little sceptical about investing over the years. We’re continuing to move to a cashless society, especially after the pandemic. Granted, it does have other divisions aside from the printing, including authentication. This likely has legs for the future, but I just don’t see how this business will ever get back to the glory days of a decade back when the stock was nearly at 1,000p!

The post This penny share jumped 46% last week! What’s going on? appeared first on The Motley Fool UK.

De La Rue shares have lost over 90% of their value over the past five years and now trade for pennies.

Still, today’s final results from the company contain some reasons to be optimistic about the future. Could the current share price offer long-term investors a bargain?

Changing landscape

With demand for banknotes falling in some markets, De La Rue’s business model has been struggling to catch up. The firm is trying to build its other businesses, such as security authentication, but for now at least banknote production remains central to the firm.

Revenue last year shrank 7%. That was driven by a 9% fall in the currency division’s revenue.

The company swung to a £30m pre-tax loss on its continuing operations, although a significant part of that was driven by exceptional non-cash charges.

Net debt rose 16% to £83m and is expected to be around £100m at the mid-year point. The company saw a net free cash outflow.

Bright spots

That might sound pretty bad, but it could have been worse.

The annual report did not contain a ‘material uncertainty’ statement about the viability of De La Rue as a going concern. That should help the firm when negotiating with lenders.

The company also struck an upbeat note on its order book, saying it has already contracted to fill ‘the significant majority’ of banknote production volume for the current financial year, which runs until the end of March.

De Le Rue said it expects full-year adjusted operating profit to be close to £20m.

Possible bargain

With the current market capitalisation of around £80m, that means De La Rue shares are trading for around four times the expected adjusted operating profit per share.

That sounds like a possible bargain, especially if the firm can continue to improve performance in coming years.

But I also see risks here that help explain why De La Rue shares still trade for pennies.

Adjusted operating profit is one thing, but the firm also has non-operating line items in its accounts, like investing and financing charges. With an expected £100m of net debt, they will be considerable. It may be that the company continues to burn cash for the foreseeable future.

I am also not convinced that the tide has turned following what its chief executive described as a ‘historically low demand period’ for the currency division. Although the firm sounds optimistic about the outlook for this crucial division, it could be that lower banknote demand is simply the new norm as some countries encourage consumers to use digital payment methods.

If things go well, De La Rue shares could turn out to be a great bargain at today’s price. Its expertise in an industry with few commercial rivals is a strong competitive advantage. But I still see considerable risks and will not be investing.

The post Selling for pennies, are De La Rue shares a bargain? appeared first on The Motley Fool UK.

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:

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!

The post This penny share is an ex-FTSE 100 stock. Do I buy it now? appeared first on The Motley Fool UK.

Plenty of problems to note

Over the past year, the stock has fallen by a chunky 55%. It has been a fairly linear move lower over this period, compounded by company-specific problems.

For example, the most recent issue comes from activist shareholder Crystal Amber. The fund is calling for the chairman, Kevin Loosemore, to resign. This is due to what it believes to be financial failings at the company ever since the turnaround plan was announced back in 2020. Since then, it argues that the numbers haven’t improved at all, and so a head needs to roll.

Another problem on a broader level is decreasing demand for banknotes. Particularly over the past year as we’ve come out of the pandemic, I’ve seen far more cashless companies. Even my favourite restaurant near me has now gone cashless! I can appreciate that there’s a likely strong correlation between the De La Rue share price and the falling need for cash in society.

Warnings from a valuation metric

The demise has pushed the market cap below £100m, but because the company is technically profitable I can try and assess the value from the price-to-earnings ratio. At the moment, the ratio is 3.65. Given that I usually say a ratio of 10-15 is fair value, 3.65 is exceptionally low.

This could indicate to investors that the stock is undervalued. However, people need to appreciate that sometimes a ratio that’s very low is a red flag. Essentially, De La Rue has gone beyond the point of being undervalued. Very many other investors simply don’t value it enough to buy!

Put another way, people aren’t buying the stock even though the earnings are high relative to the current share price. This is a clear warning sign to me.

The other side of the coin (or banknote)

The firm is trying hard to diversify revenue away from just printing. In the latest half-year report, revenue from authentication jumped by 22% versus two years ago. It accounted for £45.5m of the total revenue of £164.3m generated during the half-year.

Another point that will help to provide resilience going forward is the growth in profit margin. The operating profit margin has increased from 0.3% to 9.6% in the space of two years. This gives some breathing space to make money even if costs increase this year.

Ultimately though, I don’t feel De La Rue is in a great position, especially with the ongoing shareholder battle. It’s not a business I see growing in the long term and therefore won’t be buying it any time soon.

The post This historic brand has just become a penny stock! What’s going on? appeared first on The Motley Fool UK.

The company has some unique competitive advantages. So ought I to take advantage of the current share price to add it to my portfolio?

Changing world

De La Rue has had a strong business for several centuries printing banknotes for central banks across the globe. That remains an important source of revenue. But as the world shifts to a higher rate of digital payments, the firm has been broadening its horizons while drawing on its established expertise. For example, it produces authentication products like the duty stickers seen on alcohol and tobacco in many markets.

This mix of businesses makes sense to my mind. But it has not been enough to stop revenues falling. In the first half they were down 8.3% compared to the same period in the prior year. Having a license to print money is not necessarily a license to print money!

The authentication division revenues grew 2.5% year on year while the small identity solutions division recorded double-digit percentage revenue growth. The problem for De La Rue is that the currency division accounts for the lion’s share of revenues. That division saw revenues decline 12.3%.

Should this sell for pennies?

De La Rue currently has a market capitalisation of around £128m. It had net debt at the interim stage of £87m, meaning it has an enterprise value of roughly £215m.

It has been consistently profitable in recent years. Even in its 2021 nadir, annual post-tax profits came in at £8.5m. Last year they were £22.9m.

For the full year the company expects adjusted operating profit of £30m to £33m. That is a different measure to unadjusted post-tax earnings, but it does underline that De La Rue continues to have strong profit potential despite its challenges.

To me, the current De La Rue share price makes it look cheap.

But I see some significant risks that might explain the price. Banknote demand may be in long-term structural decline, potentially hurting the economics of the De La Rue business badly. The company performance can be badly affected by the loss of a single contract, as we have seen in the past. The debt pile will also need to be paid down at some point, eating into profits.

In for a pound?

I considered buying De La Rue shares for pennies apiece in the first half of 2020. I decided not to – and they quadrupled in under a month! I could have been sitting pretty if I had decided to invest back then.

The declining price gives me another buying opportunity for less than a pound a pop. I still see a lot to like in the business. But I think the risks are too high for my liking. So I shall not be buying.

The post With the De La Rue share price in pennies, should I buy? appeared first on The Motley Fool UK.

Hedge fund manager

Man Group (LSE: EMG) investors have actually had a good five years, with the shares up more than 75% over that period, and up 45% over the past 12 months. But that hides a more volatile longer-term ride, and the price was a lot higher in the mid-noughties.

We’re looking at a trailing P/E of only around 8.4 now. The whole investment management business is depressed, with many suffering outflows of funds, and I do think the risks are high for the rest of the year. But in its first-quarter update, Man reported a $3.1bn net inflow, to reach record assets under management.

Man is also among the companies distributing excess capital via a share buyback programme. And analysts predict a 2022 dividend yield of around 5.5%. Overall, man Group looks like a nice growth buy to me with dividends thrown in. But I do expect volatility.

Housebuilder

I reckon most of the building and construction sector is probably undervalued, as long-term demand for housing seems unstoppable. But I see a competitive advantage for Berkeley Group Holdings (LSE: BKG) in these tough times.

I don’t expect the housing slump that many investors are fearing. Although any lengthy slowdown in house prices could keep the sector depressed for some time. But Berkeley is more of an upmarket builder — it reported an average selling price of £603,000 for the year ended April 2022. That was down from an even higher £770,000 average in 2021, but at this end of the market the property mix can vary considerably from year to year. Berkeley does share the risks of the sector during any potential squeeze, but I suspect its growth potential could be more resilient than most.

Security paper

My final pick is banknote and security printer De La Rue (LSE: DLAR). De La Rue has been in a bit of a transformation phase in recent years, and it’s not through it yet. In May, the company spoke of “headwinds that are anticipated to have an impact on adjusted operating profit in FY23“.

But forecasts suggest a P/E of only around six for the current year, dropping to under five the following year. Why is the company so lowly valued?

The big risk lies in the future of cash. But I don’t hold with these predictions that cash will soon be obsolete. There are huge parts of the world, with the biggest populations, where I just don’t see that as feasible. This is my most speculative growth share pick, and I think it’s also the riskiest. But the shares do look cheap.

All of these shares are risky right now, I think. And I would only buy after doing a good bit more research.

The post 3 cheap growth shares to buy right now appeared first on The Motley Fool UK.

Demand for self-storage space is booming in Britain and so City analysts think earnings at Safestore will rise 35% in this financial year. Consequently the FTSE 250 company trades on a forward price-to-earnings growth (PEG) ratio of 0.9. A reading below 1 suggests a stock could be undervalued by the investment community.

There are various reasons why the British self-storage industry is growing rapidly. These include a strong housing market, people requiring extra storage space as they undertake DIY projects, and businesses needing space to store stock as e-commerce grows and shops implement social distancing measures.

Yet the domestic self-storage industry still has plenty of room left to grow. The Self-storage Association notes that there is just 0.68 square feet of storage space per head of population in Britain. That lags the 9.4 square feet of space recorded in the US by quite a distance. And Safestore is expanding rapidly to make the most of this opportunity. The business saw revenues leap 11.1% in the six months to April, latest financials showed.

Demand for Safestore’s storage units could start to slump if the economic recovery continues to stutter. However, I think this cheap UK share’s ultra-low PEG ratio more than reflects this potential threat.

Another cheap UK share on my buy list?

I’m not tempted to buy De La Rue (LSE: DLAR) shares for September, however. That’s even after considering that an expected 300%+ earnings recovery this fiscal year leaves it trading on a forward PEG ratio of just 0.1.

Money and passport printer’s turnaround strategy is making waves right now. Costs are coming down and the company is splashing the cash in fast-growing areas of the business. De La Rue is doubling polymer banknote printing capacity to harness soaring demand for plastic-based cash. It’s also investing heavily in technology at its Authentication division, a part of the business growing solidly as the problem of illicit trade worsens.

That being said, I’m still concerned about De La Rue’s long-term future as our increasingly ‘cashless’ society casts a shadow over the firm’s core operations. The Covid-19 emergency has hastened the decline of physical money as people have sought to minimise the risk of infection. And legislators are taking steps to make it easier to buy things without cash. For example, the UK government announced it was raising the contactless limit to £100 from October.

Changing customer habits when it comes to making in-person payments, growing investment in payment technology by banks and tech giants like Apple and Google, allied with the rapid rise of e-commerce, all create huge risks for De La Rue to overcome. Some would argue that these risks are baked in to this cheap UK share’s earnings multiple. But for me, the small-cap company remains a risk too far.

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