Citigroup is worried by oversupply in the banknote printing industry and, as a result, has downgraded its rating for De La Rue plc (LON:DLAR) to ‘neutral’ from ‘buy’ while retaining a 710p price target.
In reaction, De La Rue shares on the FTSE 250 index shed 4%, or 26.5p to 637.0p.
In a note to clients, Citibank’s analysts said that “while currency print supply/demand dynamics continue to improve, particularly with Joh Enschede’s recent closure, Crane’s US$100m investment in Malta, scheduled to open mid-2018, could bring back industry oversupply.”
READ: De La Rue expects full-year operating profits to top market expectations
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The analysts pointed out that Crane - the number 5 operator by market share - has a new banknote print facility under construction in Malta, where De La Rue has one of its five print facilities.
They said: “While we expect a gradual deployment, with probably only one print line being opened initially, 140,000 square feet and US$100mln total announced investment, suggest further lines could be opened over time.”
But, the analysts added: “The combination of new technology (the industry’s first new print facility for decades) and clearly high aspirations could undermine industry pricing.”
They concluded: “Our previous supply/demand inflection thesis no longer feels tenable so we downgrade our rating from Buy to Neutral.”