This Undervalued Company Literally Prints Money

THE VALUE INVESTOR: Undervalued opportunities are diminishing but a few stocks offering upside potential remain

Holly Cook 6 August, 2014 | 12:07AM
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Despite the FTSE 100's marginal decline in July, the UK market looks to be exactly fairly valued at present, with current share prices reflecting our analysts' long-term valuations for each stock in aggregate. While undervalued opportunities are diminishing, there are still a handful of stocks that the market is failing to appreciate.

Among them, De La Rue (DLAR) stands out. This company offers services that centre on the design, printing and handling of currency and security documents—it literally prints money, and is a long-established leader in its industry.

De La Rue currently trades around 730p per share, which represents an 11% discount to our fair value estimate of 873 pence. The currency designer and printer has relationships with 150 countries, with 38% and 7% of its revenue generated in Europe and the Americas, respectively, and the balance coming from around the globe.

Morningstar senior business services analyst Brett Horn notes that it might be surprising that any country might choose to outsource such a vital component of its economy, but many small countries lack the resources to cost-effectively design and print a secure currency. De La Rue steps in to fill this gap, taking advantage of the scale efficiencies of handling so many currencies to offer countries these services at a substantial discount to the cost they would incur in doing it themselves, but still at a price that locks in economic rents.

De La Rue is not only currently undervalued, as represented by its 4-Star rating, but it also boasts a wide ‘economic moat’ or sustainable competitive advantage, meaning it does a great job of warding off potential competition and will continue to do so.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
De La Rue PLC101.00 GBX-2.42

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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