Investment Column: Da La Rue can hardly get worse

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The Independent Online
THERE IS a certain symmetry about Jeremy Marshall's tenure as chief executive of De La Rue. When he took charge of the presses at the banknote and cash handling group, the share price was about 300p. For the first five years of his tenure, De La Rue rode a booming market as the new democracies of eastern Europe printed new banknotes. At their peak, De La Rue shares hit 1050p, and Mr Marshall seized the opportunity to use that expensive paper to pay over the odds for Portals, the papermaker.

Though that deal eventually stacked up, De La Rue never really recovered. Increased competition in the traditionally cosy banknote market and an unfortunate habit of promising too much and delivering less meant that, in just three years, Mr Marshall signed his name to no less than four profit warnings and watched the share price slump back down to where it was when he started. Yesterday's warning, which dumped the shares down a quarter at 269p, proved too much and Mr Marshall "retires" two years ahead of schedule.

Replacing the man at the top is rarely the solution to the problem, even though chairman Brandon Gough, the Surrey-based Yorkshire Water chairman who is taking charge until a replacement is found, should be able restore an element of credibility to De La Rue's dealings with the City. Yesterday, he made all the right noises about getting rid of non-core businesses, investing for expansion and improving efficiency. But the real question is whether De La Rue's margins have been sufficiently eroded that it is now in line with the rest of the industry.

Judging by yesterday's statement, it's hard to see how much worse it can get. Operating profits for the year to March will be pounds 60.5m - down a third on last year. De La Rue blames the strong pound, the Asian crisis and an absence of one-off banknote printing contracts for the shortfall. Henderson Crosthwaite forecasts that pre-tax profits will be pounds 90m this year, though they will fall to pounds 72.5m in 1999 due to a fall in profits from 50 per cent owned printing machine group De La Rue Giori. After that, the introduction of the Euro will mean a huge demand boost for banknote printing and cash handling machines - but will that just prove another cyclical blip?

It's hard to see the share price slipping much further. Even taking the low point in 1999, the shares trade on a forward multiple of 11 and are currently valued at less than net assets. Even so, future disappointment cannot be ruled out. Only for the brave.