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Rexam passes health check

RESULTS: Rexam faces a tough second half and much will depend on Brazil and further growth in the US
August 1, 2012

Rexam’s core beverage cans division did surprisingly well in the first half, driven largely by the early return of North American volumes and strong demand for higher-margin specialty cans. However, softness in Europe and Brazil and a sharp drop in profits at the healthcare business has blown away some of the euphoria surrounding the company's recent sale of its personal care division.

IC TIP: Buy at 423p

Strip out personal care and underlying operating profit grew 2 per cent to £253m, all of which came from beverage cans. A 6 per cent increase in volumes generated profit growth of 7 per cent, thanks largely to the recovery of a third of the volumes that were lost in North America in 2011 after Rexam renegotiated a contract for Coke cans. Speciality cans for energy drinks were big business in Europe, too. However, bad weather and the economic crisis slowed progress in the standard variety during the second quarter, while planned taxes on beer and soft drinks could cool demand in Brazil later this year. At healthcare – now the sole plastics business – a drop in both demand and prices for a key device coming off patent next year sliced profits by a quarter to £27m. Thankfully, the second half should be no worse.

Bank of America Merrill Lynch has trimmed forecasts and now expects underlying EPS of 36.3p for the full year (36.1p in 2011).

REXAM (REX)

ORD PRICE:423pMARKET VALUE:£3.7bn
TOUCH:422-423p12-MONTH HIGH:445pLOW: 295p 
DIVIDEND YIELD:3.5%PE RATIO:14
NET ASSET VALUE:241p*NET DEBT:67%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20112.1019215.94.7
20122.1716613.75.0
% change+3-14-14+6

Ex-div: 8 Aug

Payment: 4 Sep

*Includes intangible assets of £1.86bn, or 212p per share