Why U.S. Banknote May Soon Be Making A Mint

Here's a money-making machine--literally. Among the products that roll out of U. S. Banknote's highly secured printing plants is foreign currency. The company is also the world's largest printer of travelers' checks. U. S. Banknote doesn't print dollars, but federal food coupons, Treasury checks, and postage stamps account for 30% of revenues. In addition, about 25% of sales come from stock and bond certificates. And with new equity issues booming, U. S. Banknote can't help but profit, too.

The Amex-traded stock, now at 3 3/4, has more than doubled in the past three months. It had been near 5 but has come down since the company's Apr. 15 offer to exchange each share of cumulative preferred for three shares of common. One New York money manager who has been buying common shares says that after May 13, when the exchange offer ends, U. S. Banknote should resume its climb.

Why? Improved profit margins from economies developing out of last July's acquisition of International Banknote. The merger wed the two largest players in this niche industry.

The combined company shuttered three of six domestic printing plants and laid off about 400 employees. Yet in the offering documents, management says that the remaining plants have more than enough capacity to handle its printing needs well into the future. The benefits of the merger are already manifest. Operating profit margins went from 30% in 1990's third quarter to 42% in the fourth. First-quarter earnings should be reported shortly, and observers expect those numbers to reflect more of the benefits of reduced overhead.

BUCKING THE TREND. But there's more to this company than printing on paper. U. S. Banknote is the world's largest producer of holograms for security and commercial applications. Its customers include the major credit-card issuers, and the company is actively developing new uses and markets for the imaging process.

Critics say the boom in equity issuance doesn't necessarily mean that there will be a great demand for stock certificates. They note that the longtime trend in the securities business has been toward "book-entry" ownership rather than physical certificates. But surveys show strong investor preference for certificates, and the Securities & Exchange Commission has said that it will continue to support the use of certificates as an option. "A decade ago, people said check-printing was a dead business, too--and we're writing more checks than ever," says the money manager who has been buying. He thinks U. S. Banknote will reach 10 within the year.

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