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Rexam falls short

RESULTS: Cutting costs and better growth outside of North America should boost earnings in 2014
February 21, 2014

Can maker Rexam (REX) got the better second half it wished for six months ago. Global volumes of drink cans nudged higher and the company easily beat its own target for return on capital employed of 15 per cent. But a 4 per cent increase in underlying pre-tax profit to £372m was still £20m shy of consensus forecasts, sending the shares tumbling in morning trading.

IC TIP: Buy at 500p

Continuing to claw back share in North America - lost when the Coke contract was renegotiated in 2010 - was the big growth driver: volumes jumped 7 per cent, despite a 3 per cent market decline. But Western Europe and South America, where higher metal conversion and premium costs trimmed group organic operating profit by 1 per cent to £449m, were "disappointing".

Still, the UK’s summer heatwave and strong growth in Scandinavia helped. So too did a reassuring summer rebound in Brazil in the fourth quarter, which chief executive Graham Chipchase tells us has continued into 2014. Extra capacity for faster-growing speciality cans, the build up to carnival season in March and the World Cup underpin forecasts for mid-single-digit volume growth in the country this year.

Bank of America Merrill Lynch expects underlying pre-tax profit of £371m this year, giving underlying EPS of 41.5p (from 40.7p in 2013), rising to 45p in 2015.

REXAM (REX)

ORD PRICE:500pMARKET VALUE:£4bn
TOUCH:500-501p12-MONTH HIGH:551pLOW:   434p
DIVIDEND YIELD:3.5%PE RATIO:16
NET ASSET VALUE 236p*NET DEBT:63%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20094.5313411.48
20104.6233827.112
20114.2340233.114.4
20123.8931927.815.2
20133.9433932.017.4
% change+1+6+15+14

Ex-div: 7 May

Payment: 3 Jun

*Includes intangible assets of £1.27bn, or 160p per share