Broker snap: Investec upgrades De La Rue to 'buy'

29th May 2013 10:08

Investec has upgraded its rating for banknote maker De La Rue from 'add' to 'buy' following the company full-year results on Wednesday, with the broker saying that the company is in 'increasingly good shape'.Results for the year to March 30th were broadly as expected, Investec said, with revenue down 8.0% to £484m (missing the £501m forecast) but underlying profit before tax up 2.0% at £59m (ahead of the £56m estimate).However net debt of £77m, whilst up sharply from £25m the year before, was lower than the broker had forecast (£94m) due to lower working capital and capital expenditure.Investec highlighted that despite markets conditions having "clearly become more challenging", De La Rue "importantly" reiterated its operating profit guidance of in excess of £100m for the current fiscal year ending 2014, up from just £56m the year just gone. This will be helped by the 'Improvement Plan' which is now targeting cost savings of £40m, from £30m previously.Investec admitted that a number of important currency contracts are required to underpin this operating profit target and investors are likely to be concerned until these are fully secured."Reduced visibility in ordering patterns from the group's customers continues to impact, particularly on production schedules, increasing forecast uncertainty," the broker said."However, the group is increasingly in good shape operationally and we believe this bodes well for its competitiveness, flexibility and long-term profitability. The next news flow will be the annual general meeting in July, which will be eagerly awaited to see if the required contracts have started to be secured."The target price for the stock was raised from 960p to 1,050p.The stock was down 1.5% at 971.2p by 10:17 on Wednesday.