Investment: Bid rumours prompt rethink on De La Rue

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The Independent Online
THERE'S NOTHING like a good bid rumour to give a bombed-out share price a lift. And when the supposed predator is the world's biggest company, investors are bound to prick up their ears.

So yesterday analysts were hurriedly updating their break-up valuations of De La Rue after an entertaining story did the rounds that Microsoft was planning to pounce on the troubled banknotes to smart cards group.

Not that the market gave too much credence to the tale. The suggestion that Bill Gates might take time off from his battle with the trust-busters in Washington to mount a bid seemed a little too far-fetched, and De La Rue shares only ticked up 4p to 186.5p.

Nevertheless, it forced investors to ask: what is De La Rue worth?

Coming up with a coherent answer is tricky. For the past few years, De La Rue has seen overcapacity in security printing and over-ambitious development plans in cash systems erode its bottom line. The City, which has been disappointed too often, is reluctant to expect a recovery.

However, De La Rue appears to be tackling the problems. It has shut down a banknote printing plant, cutting the industry's capacity by about 15 per cent and relieving pricing pressures.

Meanwhile, Ian Much, the new chief executive brought in from T&N, has taken personal charge of shaking up the cash systems division. The onset of the euro should provide a welcome boost in demand for the division.

Add in the smart card division, which has potential for explosive growth, and analysts calculate that a break-up value of about 300p a share is not too far-fetched.

In the absence of a bid, institutions will probably wait for an update on strategy from Mr Much before piling in. But for the patient investor, the downside is limited. A long-term buy.