Shares in specialty printing company De La Rue were +4% as the firm reported FY 2018 pre-tax profit nearly doubling, with revenue +7%, after company has sold off 90% of its paper business to private equity firm Epiris in February this year. Despite glowing headline figures, De La Rue’s overall FY profit guidance remained unchanged (having already been lowered in March) as adjusted operating profits that exclude such one-off cash injections actually fell 11% YoY.

De La Rue’s order book excluding paper business increased 6% and the company (which manufactures specialty items such as passports, IDs and banknotes) will need these future orders to keep flowing in order to make up for losing its contract with HM’s Passport Office to design and manufacture post-Brexit identification documents.

Company continued investing in more research & development to stay at the forefront of the global shift to polymer-based banknotes (where it holds nearly 50% of global market share) as demand for new types of notes has more than doubled to 810 tonnes in 2018. This focus on more forward-looking investments and on shedding capital-intensive parts of the business is contributing to the current transitional period in the company.

Markets were rewarding De La Rue’s progressive thinking and overlooking the less-than-stellar FY guidance. Investors were concentrating on the opportunities lying ahead, valuing long-term sustainable growth over immediate returns. The ball is now in De La Rue’s court to prove that investor “full faith and credit” is justified and that the company can bounce back from setbacks in its traditional products.

Artjom Hatsaturjants, Research Analyst, 30 May 2018