Full-year results from the Human Screen

De La Rue has been through a self-inflicted wobble and appears to be emerging true, but the market recognises it.

Highlights

• Adjusted operating profit up 56%
• Adjusted return on tangible assets: 14%
• Adjusted net profit of ''43.2m compared to net cash flow of ''85.5 (''54m after net capital expenditure)
• Net debt down 15% at ''25.4m, 7% of tangible assets (''171m after pension deficit of ''145.6m)
• Per-share dividend unchanged

The Human Screen comments:

There’s more to De La Rue than printing banknotes, though that side of the business earns 62% of revenues and 72% of operating profits. It also prints other secure documents (for example stamps, vouchers, cheques, birth certificates, and certificates of authenticity), identity documents like passports and driving licenses, the holograms used in bank notes and credit cards, and supplies bulk cash handling hardware and software.

The attraction of the business is it’s a specialist market, in which De La Rue has an entrenched position, having printed its first security product, a tax stamp, in 1853. The Human Screen talks a lot about hidden champions and De La Rue is one of very few British companies identified as such by Hermann Simon in his book Hidden Champions of the Twenty First Century. The company lost some of its lustre, though, when it revealed staff had falsified paper test certificates, and the company has yet to establish what fines or resolutions it might have to pay.

Not having any insight into this issue, the Human Screen is unnerved. Frustratingly De La Rue doesn’t divulge as much as it might, when things go right as well as things go wrong, presumably because it, and its customers, are sensitive about security.

Even so, the Human Screen thinks the company is stalwart, that has been through a self-inflicted wobble and is emerging true.

It appears the market is pricing in a recovery to pre-crisis levels of profit too as this year’s unlevered post-tax earnings yield only 4%. The Human Screen also wonders whether traders are speculating on a Euro collapse and the new currency that would have to be printed.

More on De La Rue

LON:DLAR

HS+ (worth watching for improvement in fundamentals/price)