The uncertain outlook for the global economy means UK share investors need to be extremely careful before parting with their cash. Individuals certainly shouldn’t spend any money they can’t afford to lose to buy British stocks.
I still think that buying stocks remains a good idea today, however. This is because there are still many companies that should thrive despite the possibility of a bumpy economic recovery. Unilever is one top stock whose sales I think could actually receive a bump following the Covid-19 crisis.
Cash crisis
There are also lots of UK shares that could potentially cost investors like me a packet. And banknote printer De La Rue (LSE: DLAR) is one company I think could be a big corporate casualty of the coronavirus. Lockdowns during the past year have accelerated the use of e-commerce where cash is useless. The reduced use of physical money in shops threatens to continue long after the pandemic has passed too.
The use of contactless debit and credit cards, along with digital wallet platforms from the likes of Google and Apple, has exploded over the past year as consumers have sought to reduce the chances of infection. The head of the Royal Mint has suggested that the use of physical money will keep dropping too. In comments to The Daily Telegraph, Anne Jessopp suggested that coin circulation could fall by as much as 20% following the pandemic.
On the plus side…
This clearly bodes badly for De La Rue. The UK share’s core Currency division swung to a profit of £2.5m in the six months to September from a loss of £12.5m in the same 2019 period. But this was thanks to better margins on the back of cost-cutting. Revenues actually dropped 2.1% year on year to £126m.
Fans of De La Rue will point to the huge sales potential that the move to polymer banknotes offers the company. Only 3% of the world’s banknotes were polymer-based as of September, the company says. Clearly this UK share, an expert in the new technology, has plenty of upside in this market. De La Rue has also recently extended its position as the Bank of England’s exclusive banknote printer through to 2028.
I’d buy other UK shares today
The threats posed by an increasingly-cashless society remain too vast to make me want to invest in De La Rue though. That’s even though City analysts reckon annual earnings here will rise 15% and 20% in the financial years to March 2021 and 2022 respectively.
This year’s forecast leaves the printer dealing on a forward price-to-earnings growth (PEG) ratio of 0.9. Any reading below 1 can often suggest that a company is undervalued. But I don’t think that’s the case here. De La Rue doesn’t just face a significant demand drop across its key operations. Its balance sheet also remains mired in debt and more share placings like that of last summer could be around the corner. I’d much rather use my own banknotes to buy other UK shares today.