Rexam overcomes weakness in plastic packaging

Consumer packaging company Rexam (REX) said on Thursday that good growth in its beverage cans division had offset “further weakness” in its plastic packaging division in the period from 1 July.

Results in beverage cans were "slightly ahead" of management's expectations, driven by "tight cost control". Russian volumes were "soft, relative to strong prior year performance". Trading in North America remained in line while South America "improved somewhat". It added that it wouldn't have a hold on performance in Brazil until the "important summer season".

After initially surging to the top of the FTSE 100 winners' board, shares in Rexam slipped from over 5% to stand a whisker above 1% in mid-morning trading.

In plastic packaging, personal care continued to be weak. "Notwithstanding the cost actions we have been taking to protect profit, overall results in Plastic Packaging are below our plans due to lower volumes," the company statement read.

The sale of the closures business, for $360 million (c£229 million), was completed on 1 September. The proceeds were used to reduce net debt, which stood at £1.4 billion at 30 September.

"Looking into next year we will have to contend with lower GDP growth in several of our major markets and as previously indicated, some specific challenges as we absorb £20 million of higher metal conversion costs in European beverage cans and the impact of a key healthcare product coming off patent," said chief executive Graham Chipchase.

Additionally, chairman Sir Peter Ellwood confirmed that he was going to retire from the company on 22 February, leaving Rexam "in a strong position, having announced record profits and cash flow for the year to 31 December". He will be succeeded by Stuart Chambers, who is currently a non-executive director of Tesco (TSCO), The Manchester Airport Group and Smiths Group (SMIN).

"Given the continued underperformance of plastics, the company is considering disposing of personal care," said Caroline de La Soujeole, analyst at Seymour Pierce. "In our view, this would be a good move leaving the more attractive and resilient healthcare products as the main division in plastics," she added.

De La Soujeole estimated that Rexam's shares were trading on a prospective price/earnings ratio of 9.1 times, with a dividend yield of 4.4%. "The discount to peers Crown and Ball is unjustified in our view," she stated, reiterating her 'buy' recommendation.

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