De La Rue results and capital raising

De La Rue: (DLAR.L: FTSE Small Cap Index. Market Cap £159m, 153p, 1.3% of JIC Portfolio and 0.0 of JIC Top 10)

Results for the year ended 31st March and capital raising of £100m gross.

You can read the results HERE

Conclusion: Better than expected results and a CEO who, at this early stage, seems to be successfully pursuing a sensible turnaround plan. Cost-saving opportunities look higher than expected. Authentication is clearly doing well, and it is confident of winning new business both there and in currency, where demand for polymer banknotes is growing. The capital raise makes sense and I think will go down well. I will be applying for my entitlement and perhaps some more. More on that later. (As an aside I am astonished that raising gross £100m drops down to net proceeds of £92m. The fee seems excessive. Should be more like £2m.) It should be given credit for ensuring all shareholders have the opportunity to participate. I’ll be looking out for new forecasts, but the stock looks cheap on a price to sales and with an improvement in margins, looks cheap on a price to earnings; I just can’t quantify with any accuracy, by how much at this stage. Happy I bought a few weeks ago and looking to get to my 2.0% target, with the help of the open placing. 

Main points:

The results are awful compared to the previous year but are better than expected. The main problem was in Currency, with Identity Solutions steady, and Authentication winning new business.

“Business update
· Three-year Turnaround Plan announced in February 2020, which is focused on growth in both Authentication and Currency, and a cost reduction programme. 
· Already implemented actions expected to deliver £24.8m of annualised savings (out of the total £35.9m of annualised savings targeted under the Turnaround Plan).
· Today announcing a consultation process in relation to a proposal to cease banknote printing at our Gateshead plant, while retaining current printing capacity.
· Won two new customers in Currency for our security thread Ignite®, with strong demand for Currency.
· The Qatar Central Bank will be the first central bank to issue our next generation security feature NEXUS™.
· Strong growth in Authentication with good pipeline of upcoming tenders.
· Mitigating actions taken to protect employees and insulate the business from the impact of the COVID-19 pandemic, with limited disruption experienced to date.”

It is raising £100m gross through a firm placing of 45.4 m shares at 110p and open offer to all shareholders of 45.5m shares, also at 110p. The Open offer is: 7 new shares for every 16 held at record date of 12th June.

Clive Vacher, Chief Executive Officer of De La Rue, said:
“I am pleased that we have seen increased utilisation of our factory capacity for Currency in the second half, alongside strong growth in Authentication and polymer throughout the year.
“We are now well underway with our plans to turnaround the Company, with opportunities to grow our revenue and reduce our cost base. Our cost cutting initiatives will enable us to compete harder in the currency market, while the development of security features and polymer will drive growth for this division. Authentication and polymer continue to show strong growth and we see an increasing pipeline of new opportunities. 
“I would like to thank my colleagues who have worked hard to get the Company where it is today and we all recognise there is much more work to do. The £100m equity capital raising we are announcing today will strengthen the Group’s balance sheet and help us deliver the Turnaround Plan, enabling De La Rue to create value for our employees, customers, suppliers and shareholders”

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