- Company cuts FY23 and FY24 guidance
- Mention of bank covenants rattles market
- Shares hit a 30-year low
Investors in banknote and passport printer De La Rue (DLAR) will be thinking they have been here before after the firm cut its earnings expectations again for the year just ended and lowered its outlook for the coming year.
A little over 12 months ago, the company cut its profit forecast for the period to March 2022, sending its shares down 27% to 109p, then in November it cut its guidance for the period to March 2023 by a third triggering a 23% collapse to 77p.
Today the shares fared even worse, slumping 30% to a new all-time low of 35p.
WHY HAVE THE SHARES COLLAPSED?
For the year to the end of March 2023, the firm sees adjusted operating profits missing its previous target of £30 million by around 5%, which in itself isn’t a disaster, rather par for the course.
However, the lowest demand for banknotes in over 20 years means the company starts the new financial year with a weak order book and ‘a significant degree of uncertainty in terms of outlook’.
A number of new tenders are under way, but management has no idea how long a recovery might take so it has cut this year’s operating profit guidance to ‘the low £20 million range’ against consensus forecasts of around £40 million.
As if that wasn’t bad enough, the company revealed in was in talks with the banks to amend its loan covenants, and with its in-house pension scheme to delay a scheduled £18.75 million contribution, which suggests it is running short of cash.
ACTIVIST ON THE WARPATH
Just over a week ago, near-10% shareholder Crystal Amber Fund (CRS) announced it had sent a letter to De La Rue shareholders to request a general meeting and the removal of chairman Kevin Loosemore.
As the fund pointed out, De La Rue’s market value at the end of March was £100 million, despite the firm having raised £100 million in fresh equity in summer 2020, meaning ‘on a like-for-like basis the entire £125 million pre-money stock market valuation has been destroyed’.
Moreover, De La Rue’s net debt is forecast at £103.3 million or £0.5 million higher than three years ago when it introduced its turnaround plan and before the £100 million capital injection.
The fund goes on to claim that on every measure from revenue growth to operating margins, cash flow and indebtedness the firm’s turnaround plan has failed.
It also flags the fact De La Rue included a ‘material uncertainty ongoing concern’ audit qualification with its interim results last November.
