Investment Column: De La Rue, Holidaybreak, Plant Impact
Wednesday 25 May 2011
Our view: Buy
Share price: 840p (+10p)
Banknote company De La Rue may have a licence to print money, but after a volatile 12 months the shares have not been quite such a sure thing.
The group released its full-year results yesterday with pre-tax profits beating analysts' expectations, up 10 per cent to £33m. The dividend was maintained, which should have calmed a few nerves among investors after what has been a trying year.
Shares tumbled in August after the company revealed production problems at a paper mill in Hampshire and found falsified specification test certificates. The principal problem with production is believed to be have been related to a key customer, the Reserve Bank of India, and talks over resuming the contract, which was halted at the time, are ongoing.
The chief executive subsequently quit, and yesterday De La Rue's new boss revealed that he had drawn up plans to overhaul the business.
The so-called "improvement plan" intends to lift profits to over £100m within three years by boosting revenues and slashing £30m of costs, which will include job cuts. As Numis pointed out, should the new team reach this target, it would be trading on a price of just 11.5 times full-year earnings for 2014 from 34.7 times for the 2011 financial year.
Late last year, the plunging share price was salvaged as news emerged that De La Rue was a takeover target, but then it tanked once again when French group Oberthur walked away in January, taking its 935p per share offer with it.
Despite failing to land a deal, which De La Rue management said "significantly undervalued the company and its prospects", Oberthur is still lurking and could well return to the table with a bid offering a juicy premium to the current share price.
Beyond that, there is the recovery strategy and "an encouraging order-book profile and a good pipeline of opportunities", according to new chief executive Tom Cobbold. Add the nice 5.1 per cent yield, and we think this one might finally be worth buying into.
Our view: Buy
Share price: 269.5p (+29.5p)
Holidaybreak, the education and activity travel group, was a popular destination for investors yesterday, despite its first-half losses widening.
Shares took off, in part because of a strong pipeline of bookings at its PGL outdoor activity business for schoolchildren. Investors also saluted Holidaybreak's bullishness on the growth potential of Meininger, the Germany-based student tour accommodation group, in which it took a 50 per cent stake last year for £30.8m.
The group posted a £19.2m pre-tax loss for the six months to 31 March, compared with losses of £17.7m the previous year. This was partly the result of geopolitical unrest in the Middle East and North Africa, as well as "difficult trading conditions" for its hotel business.
But we would highlight that Holidaybreak said its educational division is 99 per cent booked for 2011, including near-full capacity at PGL's UK outdoor education centres.
Equally pleasing, we believe, was that Meininger's revenues are up 16 per cent on last year and the business is adding 23 per cent more beds to 4,550. Moreover, Holidaybreak now trades on a forward earnings ratio of under seven times, which now looks attractive. While the holiday sector is a risky one and subject to major external turbulence, we think that Holidaybreak is worth a punt.
Our view: buy
Share price: 32.5p (+7p)
When a warning on bigger-than- expected losses prompts a stock to move over 25 per cent, it tends to be heading south.
But Plant Impact's announcement yesterday that the agrochemical company has not yet received an expected milestone payment of £0.5m from its BugOil insecticide, thus enlarging the likely loss for the year, appeared to have the opposite effect, with the AIM-listed group seeing a share-price spike.
That is because it came alongside news of a tie-up with Arysta LifeScience or ALS, which will see the Japanese company take a nearly 10 per cent stake. ALS is the world's biggest privately held crop protection and life science group and will be buying shares at 45p a pop, a significant premium. Crucially, in our view, ALS also entered into two commercial agreements, one for the US and the other for Brazil. This is positive, and more than enough reason to buy.
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