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Take note and sell De La Rue

RESULTS: Profits are stable as cost savings come in ahead of schedule for the banknote printer, but the outlook is now worse than six months ago and we reiterate our sell recommendation.
May 29, 2013

Banknote printer De La Rue (DLAR) wielded the knife on costs to protect profits, but with debts trebling, the order book shrinking and the outlook uncertain, we think its time to cash in and sell.

IC TIP: Sell at 974p

Chief executive Tim Cobbold said the banknote printing market was much more challenging: paper volumes fell by a fifth to 8,700 tonnes, which sent adjusted operating profit from the currency division down 16 per cent to £38m. The unit's 12-month order book was £25m lower at £158m than a year earlier, reflecting delays in a number of important contracts. Mr Cobbold said some of these orders had been received after the financial year-end, and that the bid pipeline was up more than 10 per cent year on year.

The profit shortfall was made up by the solutions business as strong orders under the UK ePassport contract boosted demand for ID cards and underpinned a 43 per cent rise in profits to £25.2m. However, the divisional order book fell by a quarter to £49m.

Operating cash flow declined by almost half to £40.4m, reflecting the £17.3m cash cost of exceptional items as part of an ongoing cost-saving plan and rising debtors, which meant net debt more than trebled to £76.7m. Underlying operating profit was flat at £63.2m, but Mr Cobbold remains confident of achieving the profit target of £100m in the current financial year.

House broker Panmure Gordon expects adjusted EPS of 71.7p, up from 44.4p last year.

DE LA RUE (DLAR)

ORD PRICE:974pMARKET VALUE:£972m
TOUCH:973-974.5p12-MONTH HIGH:1,080pLOW: 892p
DIVIDEND YIELD:4.3%PE RATIO:22
NET ASSET VALUE:*NET DEBT:£76.7m

Year to 30 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200950296.150.941.1
201056196.671.042.3
201146472.867.642.3
201252832.931.842.3
201348451.543.342.3
% change-8+57+36-

Ex-div: 3 Jul

Payment: 1 Aug

*Negative shareholders' funds