Rexam plc Ordinary 64,2/7p (REX)

Company overview

Rexam is a leading global consumer packaging company. It is one of the leading global beverage can makers and a major global player in rigid plastic packaging. Products range from drink cans, lipstick cases, dispensing systems for perfumes and lotions, plastic containers and closures to intricate delivery systems for asthma inhalers. Major customers include Anheuser-Busch, Carlsberg, Coca-Cola, Estee Lauder, Heineken, Interbrew, L'Oreal, and LVMH. For its continuing operations, the company has close to 100 plants in more than 20 countries and employs around 19,000 people.

HL Comment (17 November 2011)

The group's third quarter trading update (17Nov2011) was broadly well received. Trading during the period proved to be in line with management expectations, with performance for its Beverage Can business coming in slightly ahead of plans, offsetting further weakness for its Plastic Packaging business. However, more importantly, management highlighted the possibility for the Personal Care segment of its Plastic Packaging business to be sold. With its Beverage Business accounting for around 80% of group revenues, and in the wake of the sale of its Closures business, any such sale would increase management focus and potentially further allow the pay down of group debt.

Negative Points:

• The Plastic Packaging business continues to drag on performance. At the half year stage, organic sales declined by 1%.
• Rising/elevated commodity prices have caused costs to rise. For the Packaging business at the half year stage, resin costs had increased by around 10% and, as around one third of our contracts are on a non-pass through basis, this equated to a non-recoverable cost of £3m in the first half. Aluminium and energy costs provide headwinds for the core Beverage business.
• Currency movements provide potential headwinds.
• Concerns persist regarding group borrowing levels. Group net debt stood at £1.4 billion as of 30th September 2011.

Positive Points:

• A restructuring and review of the business continues to be considered. The sale of the Closures business was completed on 1st September for $360m. The proceeds have reduced group net debt.
• Current trading remains in line with management expectations.
• At the half year results, Beverage Can organic operating profit, which excludes acquisitions, rose by 12%.
• Growth in the Emerging Markets remains a focus – around 30% of group sales were generated in the region as of the full year 2010 results.
• A review of group operations continues to be made, with disposals being considered.
• A progressive dividend policy is being pursued – the interim dividend was increased by 18% to 4.7 pence. The total dividend for 2010 was increased by 50pc from 2009.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.