De La Rue Plc – Showing Good Progress, with an Increase in Profits and GBP 100 million Equity Capital Raising

De La Rue Plc (LON: DLAR) is a FTSE All-Share listed industrial goods and services company, which provides software solutions and services to government, central banks, and businesses.

On 26^th November 2020, the Company will release its interim results.

Financial Highlights (FY2020)

(Source: Full Year Results, Company Website)

On 17^th June 2020, the Company provided the full-year results for the year ended 28 March 2020, with a decrease in revenue. IFRS revenue for FY20 reduced by 17.4 per cent to GBP 466.8 million (FY19: GBP 564.8 million) and was in line with the decrease in adjusted revenue. This decrease shows a lower pass-through revenue on paper of GBP 33.5 million. It has adjusted operating profit of GBP 23.7 million in line with half-year guidance with a stronger second half. The profit before tax increased to GBP 36.1 million in FY20 as compared with the previous year (FY19: GBP 25.5 million).

Share Price Performance

1-Year Chart as at June-17-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 17^th June 2020, De La Rue Plc’s shares closed at GBX 160.60 and were up by 5.10 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 288.15/GBX 36.86.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the DLAR were 2.5x, 1.8x and 0.2x, respectively, and the same multiples were lower as compared with the Support Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects and Risk Assessments
In FY20, the Group witnessed good growth in Authentication division revenue of 60.4 per cent and operating profit of 36.7 per cent. A strong start to the new financial year, with a series of significant contract wins in both Authentication and Currency. Strong order book on both sides of the company, with significant contract wins since March year-end. In FY20, its Currency division struggled, with revenue there falling by around 30 per cent to GBP 315.1 million.

Conclusion
The Group saw a robust start to the new financial year 2021, with a series of substantial contract wins in both Currency and Authentication. On 17 June 2020, the Company announced the terms of a proposed fully underwritten capital raising, which is intended to raise gross proceeds of around GBP 100 million. The Company is now well placed with the plans to turnaround the Group, with opportunities to reduce the cost base and grow the revenue. De La Rue also announced a consultation process as its banknote printing site in Gateshead.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing price of GBX 160.60 (as on 17th June 2020) and will recommend fresh buying at the right time.

John Menzies Plc – Shown Robust Performance in Difficult Markets

John Menzies Plc (LON: MNZS) is a FTSE All-Share provider of logistics services to the airline industry. The company’s business is differentiated into three geographical segments: Americas, EMEA and Rest of World.

The Group will announce its interim results on 11^th August 2020.

Financial Highlights (for the year ended 31st December 2019)

(Source: Annual Reports, Company Website)

As on 8th April 2020,the Company published its annual report. The overall results reflected a decisive action taken to right-size the business for growth, reported revenue was GBP 1,325.6 million (up 2% on 2018 in constant currency), and operating profit of GBP 39.6 million was 16% ahead of the continuing business in the prior year. The underlying operating profit from continuing operations decreased by 5% to GBP 52.5 million from the prior year. The underlying earnings per share stood at 24.9 pence in FY19. The reported net borrowings were GBP 391.5 million in FY19. The Group has taken balance sheet actions with respect to COVID-19, such as no final dividend, reduction in capital expenditure outlay, and target leverage reduction. Operating cash flow increased to GBP 134.9 million as compared with the previous year (2018: GBP 94.9 million).

Share Price Performance

1-Year Chart as at June-17-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 17^th June 2020, John Menzies Plc’s shares closed at GBX 132.40 and were up by 2.48 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 489.50/GBX 66.90.

From the technical standpoint, its shares were trading slightly above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the MNZS were 8.7x, 3.7x and 1.1x, respectively, and the same multiples were lower as compared with the Support Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects and Risk Assessments
In 2019, the Group delivered a solid set of results. MNZS has two goals in 2020 - Firstly, a substantial decrease in the leverage position by the end of 2020. Secondly, to attain continued growth by moving into new higher-yielding markets and by expanding the services to support customer growth.In 2020, considering the rapidly evolving impact of the COVID-19 disruption, the Group had taken effective actions to reduce cost and preserve cash.

Conclusion
Overall, Menzies believes the Group is on track to managing the short-term crisis that exists and will return to the growth trajectory for this year and beyond. The Company is experiencing several headwinds due to the impact of Coronavirus on the activities, but in the medium and long term, the Group would witness opportunities for growth. Moreover, the Group is in a strong position to seize opportunities in the structural growth aviation market.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing price of GBX 132.40 (as on 17th June 2020) and will recommend fresh buying at the right time.
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

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