Sometimes a share comes along which, despite a wealth of evidence that suggests investors are on a hiding to nothing, offers the sort of value to encourage even the most sensible of people to take a punt.
De La Rue (LSE: DLAR) is one of many that could be filed under this heading. At current prices the money printer trades on a forward P/E ratio of 6.2 times, a long distance inside the accepted bargain benchmark terrain of 10 times. It also carries a corresponding dividend yield of 11.6% which is more than double the average for Britain’s blue-chips.
I’ve long warned over how fragile the FTSE 250 firm’s long-term profit outlook appears as we move to an increasingly cashless society. And there’s a treasure trove of data — one that continues to swell — showing how consumers are abandoning cash all over the world as technology evolves and the online shopping phenomenon grows at the expense of bricks-and-mortar retailers.
In the UK, for instance, almost four-fifths of all retail transactions (by value) in 2018 were made by credit or debit card, according to British Retail Consortium data released last week. Cash, by comparison, accounted for a fraction above 20%, down markedly from 27.6% just five years earlier.
It’s not just that the firm’s struggling thanks to that rapidly-contracting market, though. In De La Rue’s latest profit warning of late May it alluded to “the growing competitive pressure in the banknote print market” and the “significant challenges” it faces as a result. The business presently sources 77% of all revenues from its Currency division and so investors should be very, very worried right now.
Over the past 12 months De La Rue’s share price has almost halved, its severe operating troubles complemented by its chief executive jumping ship and the Serious Fraud Office launching a probe into its operations in South Sudan. There’s clearly plenty in the pipeline that could force it even lower and so, despite its cheap price and gigantic dividend yields I’m happy to steer well clear.
I’d buy this 8%+ yielder instead
You’d be much better off shunning the dinosaur and using your investment funds to buy PayPoint (LSE: PAY) instead, a FTSE 250 firm that’s leading a small revolution in the field of commerce, and more specifically in the way it allows shopkeepers do business.
Its technologies, like the flagship PayPoint One terminals, are making retailers’ lives much easier, allowing them to carry out a range of tasks from stocktaking and taking payments to printing shelf labels. But this is not the only reason why they’re beloved by shopkeepers — through additional services like allowing customers to make bill payments and send/collect parcels, the tech brings them extra revenue opportunities too. No wonder uptake of the terminals is booming (PayPoint One was in 13,920 stores as of late July versus 12,000 just six months earlier).
At current prices PayPoint trades at 14.3 times predicted earnings and carries a giant forward dividend yield of 8.3%. I reckon this share has what it takes to generate some monster returns in the years ahead, and that these numbers make it a brilliant buy today.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of PayPoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019