De La Rue shares soar as short-sellers stunned by strong start to year

The British printer of banknotes and passports looked like the perfect stock to short, with investors anticipating that the Covid-19 pandemic would hit the company hard, only for the business to shock the market.

Only a few days ago, De La Rue shares were languishing at 40p per share, with investors writing off the company amid the Covid-19 crisis, reflected by the company’s stock losing 70% of its value up to that point.

But the printer of banknotes and passports shocked investors and the short-sellers on 1 June, after it unveiled a trading update that showed the business had hardly been impacted by the virus, with its full-year (FY) guidance left unchanged – sending its share price skyrocketing 237%.

‘The Covid-19 pandemic has to date had only a limited impact on the company's operations,’ De La Rue said in a statement.

‘The company has implemented the relevant protective, regulatory and safety procedures for all employees, including home working, and there has been limited impact on its global service, support and operations activities.’

De La Rue closed at 126p per share on Thursday.

Strong outlook for De La Rue

In its recent trading update, the company welcomed its successful start to the new financial year, with its management team quick to highlight ‘a series of significant contract wins’ for its authentication and currency businesses.

In its authentication unit, the company signed a five-year agreement to supply polycarbonate data pages for the new Australian passport.

This follows the development agreement signed with Note Printing Australia in 2016, under which De La Rue has developed several new security features to be produced at the company's factory in Malta.

De La Rue will scale up manufacturing and anticipates first deliveries in the fourth quarter (Q4) of financial year 2020/21.

In its currency division, De La Rue has maintained strong demand despite the Covid-19 crisis and was awarded contracts representing approximately 80% of its available FY currency printing capacity.

‘In addition, the company continues to make progress in enhancing its portfolio of offerings and the realignment of its cost base to enable it to become more competitive,’ De La Rue said. ‘As a result, it continues to expect the currency division to reach a mid-teens adjusted operating margin in financial year 2020/21.’

De La Rue will announce its results for the FY ended 28 March 2020 on 17 June 2020.

Short-sellers lose out on De La Rue

The company’s strong trading update shocked investors, especially short-sellers who thought that the Covid-19 pandemic would spell disaster for the business as it has for so many other UK stocks.

Unsurprisingly, short-seller GLG Partners, opted to reduce it bet against the company on 1 June following its trading update, with the investment manager lowering its position by 0.18% to 0.93%.

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