Market Report: Broker's bullish note puts fizz into Rexam
Saturday 21 August 2004
Rexam. That was the message from Credit Suisse First Boston on the drinks can giant yesterday as it moved its best clients into the stock, pushing it 5.25p higher to 419.25p. Shares in Rexam have dropped by 12 per cent since April and the Swiss broker believes this is excessive.
Investors should stop being so down about Rexam. That was the message from Credit Suisse First Boston on the drinks can giant yesterday as it moved its best clients into the stock, pushing it 5.25p higher to 419.25p. Shares in Rexam have dropped by 12 per cent since April and the Swiss broker believes this is excessive.
It is worries about the impact on the company's cost base of rising aluminium prices that has done most of the damage to Rexam's stock. However, CSFB believes these are largely unfounded. It notes that the company is 100 per cent hedged against this for the current year and 80 per cent hedged for 2005.
Meanwhile, in the United States, the bulk of Rexam's volumes are immune from the impact of rising aluminium prices as it is the group's customers who take on the risk of raw material costs. In parts of the world where this does not apply, Rexam has traditionally been very good at simply passing on the higher costs to its customers and the broker said it does not see why this will not continue.
When one looks at Rexam's valuation against that of its peers, the stock certainly begins to look cheap. At present, it trades at a 22 per cent discount to its closest peer Ball of the US. This should start to narrow after Rexam's interim results next week, which will reveal a 21 per cent jump in profits, says CSFB. It predicts that the group will achieve an even greater acceleration in earnings during the second half of its year.
The FTSE 100 index finished the week on a positive note, 6 points better at 4,369. Shell, 5p better at 401p, was supported by an upgrade from Merrill Lynch.
The US broker raised its rating to "buy" from "neutral" and hinted at a turnaround in the company's exploration fortunes. Boots put on 5p to 671.5p as Investec Securities told investors that the Government's recently announced pharmacy reforms are a positive for the healthcare retailer.
UBS brushed aside Deutsche Bank's bearish on Bunzl from earlier in the week and urged its clients to back the company. "We see the stock as undervalued and are confident that Bunzl can sustain its high returns, continue its acquisition expansion and return more cash to shareholders," the Swiss broker said. UBS set a 525p price target.
UK listed travel stocks were hit by the slightly disappointing outlook statement to accompany Swiss peer Kuoni. Lastminute.com fell 8.5p to 115.5p and Ebookers dropped 6.5p to 147p as Kuoni's outlook proved to be less bullish than may analysts had hoped.
Babcock International ticked 2.25p higher to 108.25p after Peter Rogers, its chief executive, disclosed the purchase of 80,000 shares at 106p while William Tame, the finance director, picked up a much more modest 5,000 at the same price. Market professionals reckon that trading is strong at Babcock, possibly running ahead of budget.
Radstone Technology retreated 1.5p to 315p as dealers reported the presence of a large seller in the market.
Among small-caps, Fairbriar jumped 7p to 45.5p as the property developer's finance director, Mark Balchin, bought 360,000 shares at 45p. He now controls 550,000 shares, or 1.5 per cent of the company.
Elsewhere, Laura Ashley hit a fresh high for the year of 18.5p, up 0.25p, on renewed rumours that the retailer may soon find itself on the receiving end of a bid. At the start of the year, talk of a move on the company by the US private equity firm Kohlberg Kravis Roberts did the rounds of City dealing rooms. As it stands, the company's future is very much in the hands of its biggest shareholder Malaysian United Industries, which controls 43 per cent of the retailer. The big hope at poorly-performing Laura Ashley is that Alistair Blair, the designer, can help turn around the company's fortunes. He has been busy updating the retailer's floral prints, which were a hit in the 1970s.
Telspec put on 0.5p to 11.75p after Colin Blackborn, the smaller companies specialist at Shore Capital, was heard to have amassed a 3 per cent stake in the telecom equipment minnow. He believes that after two turbulent years, the company is on the mend. It recently unveiled a series of management changes. Innovation Group gained 1.25p to 25.75p as a line of 10 million shares crossed the market at 25p.
Hansard Communications dropped 19.5p to 69.5p after Evolution Beeson Gregory disclosed that it had sold down its holding in the City PR firm to below 3 per cent. At one point, the broker held an 11 per cent stake in Hansard, which has seen its shares set alight by news of a deal with millionaire entrepreneur Terry Ramsden.
Evolution and David Newton the Monaco-based former stock broker who also this week also cut his holding in Hansard to below 3 per cent are both believed to have done very well out of their investment in the company. Even after yesterday's fall, the group's shares are still up 700 per cent on the year.
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