Banknote printer De La Rue has been hit by a hefty downgrade from Citigroup.
The company's shares have fallen 40p to 879p after Citi moved its recommendation from buy to sell and slashed its price target from 800p to 530p. The bank thinks De La Rue could suffer from a slowdown in emerging markets, which would prompt governments to make do with existing banknotes rather than printing new ones. Citi said:
"We are increasingly fearful that the emerging market banknote demand/supply squeeze could reverse, causing margin and earnings per share inflection. With De La Rue's valuation having shifted from sector discount to a small premium, we no longer see value.
"What concerns us more than deceleration of banknotes in circulation is what we term the 'batch effect'. This explains why printing of banknotes is more volatile than circulation of banknotes. The batch effect refers to the lumpiness of banknote replacement contracts. When nominal GDP (and demand for banknotes) is accelerating, governments often order a wholesale refresh of one or more types of note. They will often use this as an opportunity to change the design (update the ruler's picture, add more security features, etc). But when growth in nominal GDP decelerates, they sometimes choose to make do with their current banknote stocks and defer the cost of new banknotes until the shortage becomes acute. The point is that it is not just the volume of banknotes that is affected by nominal GDP, it is the frequency with which clients place orders."
Overall the FTSE 100 is still in positive territory although off its best levels. The index is 81.03 points higher at 4445.99 while Wall Street is ahead around 155 points. The hope that China's economic package will help prevent a severe downturn in the area is buoying sentiment, with miners still among the major risers.
Meawhile Tesco is now leading the fallers, down 19p at 324.2p after it revealed tough trading in Asia.
