The Investment Column: Healthy yield gives De La Rue value in your wallet

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The Independent Online

What is the value of money? For shareholders in De La Rue, the world's biggest commercial printer of banknotes, it is the receipt of more than £112m in returned cash over the past 18 months.

Yesterday, announcing its interim results to the end of September, De La Rue said it was returning even more of its very own produce to shareholders, buying back shares worth 15 per cent of the company.

A strong increase in cash generation and improving margins helped lift profits 6 per cent for the half year to £30.6m. But investing in De La Rue has not always been a licence to print money.

The company went through some lean times a few years ago, losing orders and forcing it in to a major restructuring. This led to the sell-off of businesses such as its loss-making voting machines division to focus on its core currency and cash-counting technology division.

This Cash Systems division has seen the most intense management attention over the past year and De La Rue said yesterday profits here had more than doubled.

The restructuring also delivered investment to De La Rue's manufacturing capabilities, which will improve its growth prospects over the next 12-18 months.

De La Rue is by far the biggest player in global currencies, but this is a mature market and there is only limited room for further growth.

De La Rue also faces the inevitable decline in paper money on a worldwide scale as electronic money transfers grow in prevalence. Still, it will be a long time yet before cash is no longer king.

Meanwhile, De La Rue can continue to bolster its margins from its steady banknote business.

The shares, at 418.25p yesterday, trade on a forward multiple of about 15 times earnings, which means much of the benefits from restructuring have already been priced in.

But the share buy-back will prop up the shares, as will its strong cash generation. Its healthy dividend yield of about 4.5 per cent also makes the shares worth keeping in your wallet.

Topps is a hold for the long term

Britons' obsession with home makeovers has helped Topps Tiles, the country's largest tile retailer, deliver stellar growth in recent years. Yesterday it reported pre-tax profit growth of 16 per cent, but it too is now being affected by the retail gloom and had to admit that like-for-like sales have begun to slide.

Sales rose a mere 3.4 per cent in the year to 1 October compared with 22 per cent growth the previous year. Even more worryingly, sales were down 4.7 per cent in the first seven weeks of the current year. Topps expects a tough first half but reckons it's not as badly affected as the rest of the home-improvement sector, one of the most blighted areas of retail.

Analysts concur, saying Topps' resilience is in stark contrast to rivals such as Floors 2 Go. Moreover, there are signs that the housing market has turned the corner, though in the short run the stabilisation will probably do no more than limit the like-for-like sales decline at Topps, rather than take it back into positive territory.

The chief executive Nick Ounstead pledged to improve margins and reduce costs, but ruled out immediate job cuts and said the strategy of opening 24 stores a year would continue.

Over the long run, the company's growth prospects are well underpinned as the DIY market should continue to grow. The stock, at 190p, trading on about 13.8 times forecast earnings. Hold.

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