Broker snap: De La Rue still a sell

9th Sep 2010 10:52

Panmure Gordon remains a seller of banknote printer De La Rue following Tuesday's revelation some of its staff had been falsifying paper specification test certificates.The broker has downgraded estimates for both this year and next, but thinks the risk to forecasts remains "firmly on the downside", at least until the final outcome of investigations into the scandal is finished and talks with major clients involved finalised.It worries that, while the issue has so far only affected one client, there is the possibility that others will emerge as investigation into other contracts remain ongoing. Shipment of affected banknote paper was immediately stopped, and De La Rue warns the problems will impact pre-tax profits by at least £35m for the first half of the year."The bad news is that De La Rue has upset what we believe is its biggest client, and there remains the potential risk of this customer terminating its contract in the near term - a contract we believe is more than significant to the bottom line," the Panmure says. "Customers with renewals and tenders next year could of course also follow suit and, at best, we believe there could be material margin lost compared to historic levels. In addition, of course, is an unquantifiable loss of reputation."Its 'sell' rating and 605p price target remain unchanged.