Investment Column: Steady Rexam seems a good bet

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The Independent Online

Rolf Borjesson, the Swede brought in to revitalise Rexam (the old Bowater) in 1996, has acquitted himself well in a tricky balancing act. The effects of his new broom, which has seen a couple of hundred businesses sold over eight years, have not disappointed those who wanted change. Operations once spanning paper to double glazing have been slimmed down to a more focused consumer packaging group.

Unusually, though, Borjesson has also confidently managed the transition to steadier growth, as yesterday's half-time results reveal. Stripping out exceptional costs, goodwill amortisation and retirement costs, underlying profits grew 19 per cent to £150m in the six months to June on turnover which slipped 1.5 per cent to £1.53bn.

If continued at the full-year stage, 2004 would be the eighth successive year of earnings growth under Mr Borjesson. But now shareholders will have to look to another Swede: Stefan Angwald, from Sweden's biggest pulp and paper group, SCA, took over as chief executivein May.

He must be pleased with his maiden figures. A chunk of the rise in profits related to last December's £270m acquisition of Brazil's biggest can maker, Latasa. Mr Angwald was coy on the fillip provided by Latasa, but it is likely to have contributed a large part of the South American beverage packaging operating profits of £15m to £20m in the half year.

Given that synergies from the deal are expected to be $15m (£8m) this year, rising to $30m in 2006 - $10m more than originally expected - Latasa looks to have been an excellent buy. Certainly shareholders who took up the accompanying deeply discounted rights issue at 255p will not be unhappy.

Rexam has done well to recoup soaring raw materials costs and offset adverse exchange rates. Top-line growth will never be more than low single digits, but astute management should see much faster earnings growth. Analysts are looking for high single digits at least, putting the shares, up 6p at 430.5p today, on a forward multiple of 11. About right.