Oct. 23 (Bloomberg) -- De La Rue Plc plunged to the lowest in more than 18 months after the world’s biggest banknote printer reduced its profit target, citing pricing pressure because of competition.
The shares dropped 9.7 percent to 885.5 pence, the lowest since April 2012. The company reduced its forecast for operating profit this fiscal year to about 90 million pounds ($145 million) from 100 million pounds.
“The continuing overcapacity in the banknote paper market has led to a worsening pricing environment in the printed banknote market,” the Basingstoke, England-based company said in a statement today. Recent orders for delivery in the second half of this fiscal year and the next year reflect this pricing pressure, it said.
De La Rue is reducing costs to compete with banknote producers in countries such as India. The company, which has been involved in the design and production of more than 150 national currencies in recent years, has said it will reduce expenses by 40 million pounds in this fiscal year.
The stock has dropped 3 percent this year, valuing De La Rue at 884 million pounds. It was the biggest decliner today on the FTSE All-Share Index.
“Excess capacity in banknote paper markets means paper prices are under pressure and that leads us to think that medium-term the road to recovery for De La Rue could be quite tricky,” Paul Jones, an analyst at Panmure Gordon & Co., said in an interview.
Panmure Gordon reduced its recommendation for De La Rue to sell from hold and cut the stock’s target price to 786 pence from 964 pence. Investec Plc downgraded De La Rue to hold from add and reduced the target price to 885 pence from 1,070 pence.
De La Rue’s first-half operating profit rose 18 percent from a year earlier to about 39 million pounds, in line with expectations, according to today’s statement. Banknote print volumes fell 10 percent to 2.6 billion notes, while paper volumes increased 4 percent to 4,700 metric tons.
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