Join our community of smart investors

Rexam prays for heatwave

RESULTS: Costs drop out during the second half and a long hot summer would provide a profit bonanza
May 17, 2013

Drinks can maker Rexam (REX) flagged up a profits shortfall a month ago, yet still managed to creep past consensus forecasts. Bad weather in Europe and slow economic growth affected volumes, and £25m of extra costs wiped out savings, leaving underlying operating profit from beverage cans down 4 per cent at £217m. However, a strong June and "incredibly good" July tee up Rexam for a much better second half, especially if the warm weather continues.

IC TIP: Buy at 516p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Bear points

With the sale of its healthcare division expected early next year, Rexam is now focused solely on drinks cans. And it was metal conversion and premium costs, already flagged, that damaged margins this time. Regaining market share in North America drove group volumes up 1 per cent, but returns there tend to be lower, and in Russia, where margins are much better, loss of market share to a new competitor and lower beer sales cut volumes by 12 per cent. And they slipped by 3 per cent in Brazil, although thirsty football supporters at the recent Confederations Cup improved June figures and last month was good, too. Next year’s World Cup there could be worth three times more, according to drinks giant Anheuser-Busch, and a new plant in Belém should generate extra growth.

Broker Oriel Securities expects full-year adjusted pre-tax profit of £434m, giving adjusted EPS of 39p (from £418m and 38.5p in 2012).

REXAM (REX)

ORD PRICE:516pMARKET VALUE:£4.09bn
TOUCH:515-516p12-MONTH HIGH:551pLow:    419p
DIVIDEND YIELD:3.1%PE RATIO:19
NET ASSET VALUE:257p*NET DEBT:67%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121.9514211.85.0
20131.9712811.85.7
% change+1-10-+14

Ex-div: 14 Aug

Payment: 11 Sep

*Includes intangible assets of £1.3bn, or 169p a share