Rexam slumps despite underlying profit rise

Underlying profits at Rexam rose 4% last year, but that was not enough to save the shares which plummeted 10% in early trading on Thursday to recover to 497.10p at 10.40am, still over 5% down on the day, and looking pale and pasty against a 52-week high of 547.50p.

The packaging group, which now concentrates exclusively on the beverage can market, said underlying pre-tax profit grew 4%, to £372 million, on sales that increased 1%, to £3.94 billion, but gave a relatively upbeat outlook.

Underlying earnings per share rose 13%, to 35.3p per share, and the board is proposing a final dividend of 11.7p per share, boosting the total dividend to 17.4p for the year. The company also announced that it had achieved its target, set four years ago, of 15% return on capital employed by the end of 2013.

Rexam sold its Personal Care division last year and is currently cashing out of its healthcare businesses, which were both reported as discontinued operations in its annual results. It plans to return £450 million to shareholders from the proceeds from the Healthcare disposal, likely around the half-year stage. This would mean it has returned nearly £1 billion to shareholders over the past four years.

A week ago, the company announced a move into the Middle East, with the $122 million (£73 million) acquisition of a majority stake in a Saudi drinks can maker, United Arab Can Manufacturing, saying that the plant is already operating well, but that its global scale and technical expertise would create synergies, and that growth prospects for the beverage can in the Middle East are attractive.

Investor view

The global beverage can maker now operates 55 can-making plants in over 20 countries but investors don't seem to like its restructure and the lack of diversity in the company's operations and customers.

Earlier this month 'LKHyman' wrote on the Interactive Investor discussion boards: "REX is certainly focusing ... fingers crossed them Pepsi boys don't change tin suppliers, eh?"

Also earlier this month 'Rhigos' pointed out that there had been "only 4 posts on this board since 20 Feb 2013, so little interest since they returned some cash to shareholders a year ago".

The shares have been battered over both the short and the medium term.