It’s been a cruel, cruel summer for investors in banknote printer De La Rue (LSE: DLAR).
An absolutely disastrous trading update at the end of May set nerves jangling before Britons even started making preparations for the sunny season. Its share price fell a whopping 34% in a day to around 300p per share, but it’s not done dropping yet.
As if things weren’t bad enough for De La Rue, news broke on Tuesday that the Serious Fraud Office (SFO) is to launch an investigation into the business and associated individuals with regards to “suspected corruption” in South Sudan.
The news sent the shares hurtling back towards the 250p marker and to prices not seen since 2003.
Boardroom blitz
As one would expect, De La Rue — which prints currency bills in the African country — commented that “it is not possible to predict reliably what effect their outcome may have” given the early stage of investigations. What the probe does do, though, is raise the prospect of some severe financial penalties and a significant hurdle in the company’s search for a new chief executive.
As I said at the top of the piece, De La Rue had already shocked markets before the summer even kicked off, declaring a 78% pre-tax profit slump in the fiscal year to March and giving guidance that results would be “somewhat lower” next year too.
Chief executive Martin Sutherland elected to fall on his sword following this most recent profit warning, leaving a mountain to climb for his eventual successor and fresh questions over future strategy. However, the boardroom strife at De La Rue doesn’t end here.
Chairman Philip Rogerson has also announced plans to retire as part of the CEO succession process, but Crystal Amber is calling for his immediate removal at tomorrow’s upcoming AGM. The activist investor is embroiled in a very public spat with the company and its board over what it sees as the “payment of egregious bonuses for destruction of shareholder value,” and also questions the appropriateness of allowing Rogerson to oversee Sutherland’s replacement.
Too much trouble
De La Rue shares are worth just a third of what they were five years ago, and it’s hard to see how the price can recover in an increasingly cashless society. As well as battling a backdrop of intense competition, the business is facing an uncertain future as technology steadily erodes the need for its banknotes.
To illustrate this point, in Britain alone, the number of payments using physical coins and bills fell a further 16% in 2018 to some 11bn transactions, according to UK Finance. The body expects the role of cash to keep plummeting as contactless and mobile payments take over — it estimates that cash, used for 28% of transactions in the UK today, will be responsible for just one in 10 in a decade’s time.
It doesn’t matter to me that De La Rue trades on a dirt-cheap forward P/E ratio of 6.8 times. Nor am I moved by its gigantic corresponding dividend yield of 10%. The huge internal and external battles it currently faces make it a risk too far in my opinion, and I’d much rather put my hard-earned investment cash to work elsewhere.
