The Investment Column: No need to cash in on De La Rue just yet

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The Independent Online

It might not have been the greatest decision in the world to sell off De La Rue's UK identity cards business a few years back, the company's chief executive said ruefully yesterday.

Of course there would be no guarantee that De La Rue would have snapped up any business under the Government's planned scheme. The division was low-margin and smaller and lower-tech than many rivals, so it had to go - like so many others that have been sold by De La Rue in its drive to get back on an even keel.

The company is staying in banknotes, for instance, which require expertise in anti-forgery techniques for which central banks will willingly pay up. It has stopped printing cheque books, which is a less skilled business entirely. In come higher-tech passports, out go export stamps.

And out, too, goes much of the printing and manufacturing, either to De La Rue's own plants in lower cost countries than the UK, or to Far Eastern contractors. These efficiencies, together with a much more controlled approach to managing the company's internal working capital, helped boost pre-tax profit (before one-offs) by more than 13 per cent in the year to 26 March.

The cashflows from this business (which gave us the confidence to tip the stock when it was close to its nadir two years ago) continue to be strong. It has no debt and, although it is keeping a little cash in the pot to pay for the ongoing restructuring, is handing £70m back to shareholders through a special dividend, worth 38p per share.

With the benefits of the restructuring now well understood by the stock market, the question shifts to whether this business has much in the way of growth prospects. The banknotes division has just had another very good year, thanks to a backlog of orders it couldn't fulfill in 2003, when it was printing Iraq's new currency. But you could argue that it is in terminal, gentle decline as we switch to electronic money. In cash systems (mainly money dispensing and counting for banks), it faces tough competition.

The shares should remain solid, but with a 4 per cent dividend yield, they look more of a hold now.

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