London, UK, 14 January 2019

Edison issues initiation on De La Rue (DLAR)

De La Rue (DLAR) continues to pursue a strategy that is transitioning the company to a less capital-intensive operation with a more diverse customer base and revenue streams, incorporating more embedded technology and IP. Underlying progress is apparent although masked by the disposals and the recent loss of the UK passport contract. The strengthening of the balance sheet enables appropriate M&A to augment what we expect to be a resumption of organic sales growth from FY21. The current rating implies scepticism but this should improve as growth prospects are recognised. In the meantime, the healthy dividend yield provides support for investors.

Our fair value DCF returns a value of 639p a share, a healthy 49% premium to the current share price. The implied P/E for FY20e of 13.9x is hardly demanding compared to the support services segment calendar 2019 P/E multiple of 14.8x. In our view, the current rating of 9.7x FY20 EPS with a yield of 5.8% does not reflect growth potential.

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