Broker snap: De La Rue over-valued

28th Jan 2011 13:13

Panmure Gordon says that De La Rue's interim management statement suggested no further deterioration in trading since the last update, but as a result, the broker makes no further changes to its expectations, as 'no news' isn't necessarily 'good news'. The banknotes and passports printer said that banknote paper volumes for the year were 10,000 tonnes, which the broker highlights as a material shortfall given capacity of 16,000 tonnes, and a geared impact on profitability at banknote paper production as a result."While we factor in some overall improvements to March 2012, we see little to get too optimistic about, given ongoing uncertainties regarding the size of the contribution from the large currently suspended banknote paper order," the broker says. "The good news is that there appears little knock-on effect from reputational damage, and cash flow appears as management expected."However, with the shares looking expensive at current levels, Panmure Gordon retains its 'sell' rating, and confirms a target price of 566p.Numis Securities rates the stock a "hold", however, with a target price of 650p."With Oberthur not able to make a bid until the end of July (unless another bid emerges), attention is returning to trading valuations, though the potential for Oberthur to return is likely to keep some premium in the DLR [De La Rue] share price," the broker reckons."The next news is the end March pre-close, an update on India (the company say they will put out an RNS [regulatory news statement] as soon as there is closure), but the real news will be in May with the strategic review when the market will hopefully get a fix on timing and scale of the profit recovery and clarity on the dividend policy," Numis said.With the shares trading around 12 times Numis's estimated mid-cycle earnings, based on circa £82m pre-tax profit, the broker thinks the current market valuation is "probably about right".