De La Rue LON:DLAR, the Basingstoke-headquartered digital authentication company quietly brought up its double century in 2021. Obviously back in 1821, computers weren’t a thing, and the company started off as a hatmaker, before securing a Royal Warrant for printing playing cards. Hanging his hat up on a stand, founder, Thomas de la Rue rolled his sleeves up and started first printing postage stamps and then moved onto banknotes. By the time he retired in 1866, de la Rue had built his company into the world’s pre-eminent commercial printer of banknotes.
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De La Rue still prints banknotes today – and is the world’s largest commercial printer of banknotes, with manufacturing facilities in UK, US, Malta and Sri Lanka having recently closed operations in Kenya. However, over the years De La Rue diversified into the security and authentication and the banknote part of the business division designs and produces banknote security features and the secure polymers used in plastic notes. The currency security includes security holograms, security threads and security printed products for central banks and currency issuing authorities. The company also for a while was involved in voter identification at the ballot box, acquiring Sequoia Voting Systems, which produced voting machines used in US elections. However, Sequoia was a loss-making venture, and De La Rue exited the company in 2005, selling to a Venezuelan software company, a move that was later opposed by the US Government.
De La Rue legal cases
In recent years De La Rue has been ensnared by several legal cases accusing it of corruption in winning contracts in developing nations. Heads rolled, and in May this year chairman Kevin Loosemore resigned to: “draw a line under recent speculation surrounding the leadership of the company.” He was replaced by Clive Whiley, former chairman of Mothercare LON:MTC in the same month. This was initially welcomed, but it emerged that Whiley will be a busy boy, maintaining his chair at Mothercare and with other roles at Sportech and Griffin Mining could only commit 25% of his time to De La Rue.
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The company is the go-to for governments seeking to authenticate identity in revenue documentation – both physical and digital – and produces the polycarbonate data pages for passports.
New leadership steadying the ship
De La Rue has been on the stock exchange since 1947. Its shares have taken a bit of a battering especially in the middle of the year when speculation about the leadership was rife. But Whiley, joined by Mothercare colleague, chartered accountant, Brian Small as non-executive director in charge of ethics, audit and remuneration seems to have steadied the ship, and De La Rue’s shares are there-or-thereabouts where they were a year ago.De La Rue opened Thursday (14th December) at 72.8p, down -3% where it was a year ago, but rose to 74.3p in the first hour of trading. However, the share price is half of what it was (147p) two-years ago, which must be a concern for investors. Given the issues outlined above, it’s been a bumpy ride with shares ranging between 29.1p and 84.87p over a 52-week period. The company has a market cap of GBP144m.
In June De La Rue published its full-year’s results to end-March. They weren’t great. Revenue was down 7.4% to GBP349.7m year-on-year with operating profit crumbling 31% to GBP27.8m year-on-year, which to be fair was in line with guidance. IFRS operating loss was concerning, with De La Rue managing to turn a 2022 profit of GBP24.2m into a GBP29.6m IFRS operating loss after GBP47.1m of exceptional charges, some relating to the closure of its Kenyan operations. Net debt was GBP83.1m which the company said was set to rise to GBP100m by the end of the year. However, De La Rue did renegotiate its facilities with its bankers during 2022.
Focus on developing nations
As the global money system dispenses with hard cash, for electronic payments and digital currency, the future doesn’t look good – especially in developed markets – for cash, hence the firm’s focus on developing nations (and the inevitable corruption that comes from these markets). However, De La Rue is one of the few beneficiaries of global inflation – with things costing more, the demand for banknotes has increased and many of its clients, who had built up inventory during Covid-19 have issued most of their banknotes and were in need of replenishing their treasuries.
On the other hand, authentication and security is becoming much more important, and its revenue from this part of the business is expected to exceed GBP100m for FY24, demonstrating good growth versus 2023 where it accrued GBP91.7m. The firm’s authentication division protects revenues and reputations through the provision of physical and digital solutions to governments and commercial organisations and manufactures ID security components.
Clive Vacher, chief executive of De La Rue said at the time in a statement to the market: “Following a significant downturn in currency demand over the past 18-months, 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.”
He continued: “In addition, [the] authentication [division of the business] is on track for significant revenue growth in the current financial year.”
De La Rue to return to profit?
By October things were looking up. In its first half of the year (to end-September) management was stating that it was expecting operating profit to be ahead of guidance and the debt situation was improving, and would only be GBP80m as opposed to GBP100m. The company had announced earlier in the year that operating profit would be around GBP20m for the full-year, breaking even at the half-way point, but now expects to exceed that.
The company is making progress, moving from loss-making territory to profit, and a new chair coming in with a new broom. As to making a call on investment, De La Rue could well turn into a small-cap recovery story, but the jury remains out.
The next results update is scheduled for next Tuesday (19th December) and analysts are bracing themselves for disappointment.