Rexam proving a canny buy

Acquisitions can drive Lookers' profits up; Hold CMG while the risks are still high

Will the tin can rally continue? Rexam, the world's largest maker of drinks cans, which counts Coca-Cola among its blue-chip customers, has bucked the bear market and looks set for further gains.

The company fell into the red in the first half of the year with a £147m loss. The negative result was produced by a stack of exceptional charges linked with a disposal programme as Rexam slimmed down to focus on consumer packaging.

That lengthy process is complete and Rexam, the former Bowater conglomerate, is now a very different beast. It has raised £794m from selling non-core assets to reduce debts after the £1.5bn acquisition two years ago of American National Can.

Strip out the £250m of one-off charges included in the interim figures, mainly writing off goodwill on the disposals, and Rexam's results impressed. Underlying profits rose 30 per cent to £134m as turnover grew from £1.56bn to £1.58bn.

The chief executive, Rolf Borjesson, put the strong growth down to the higher prices it has achieved for drinks cans in the US, up by 5 per cent in the six months to 30 June. The price recovery in the US came without a reduction in volumes and there should be more to come. Mr Borjesson hopes for an extra 4 per cent this year and 1 per cent in 2003 on annual sales of about £1bn.

The only real disappointment came in the plastic packaging business where demand dropped after 11 September as consumers cut purchases of pricey perfume and make-up, particularly in airport duty free shops. That led to customer destocking and delayed product launches. Rexam reckons, however, there will be some recovery in sales, profits and margins in the coming months.

Despite the blip, analysts were impressed and ABN Amro lifted its full-year profit forecast by 4 per cent to £269m. Investors who followed our tip a year ago to buy Rexam shares – down 26p to 437.25p yesterday – have made a tidy profit of roughly £1 a share, but there should be more to come. The shares are on a forward price-earnings ratio of just 11, and are worth buying.

Acquisitions can drive Lookers' profits up

Good looking business, Lookers. Everything has appeared to come together for UK car dealership businesses in the past year. New car sales are up more than 6 per cent on a year ago, thanks to a combination of low interest rates and the success of the Rip-Off Britain campaign which shamed car makers into offering lower prices and better deals on their vehicles.

Add to that a flurry of consolidation which has pepped up share prices in the sector, and it is little wonder Lookers has had such a strong run.

But members of the management team deserve credit, too, since they run a tight ship and have set ambitious goals. Operationally, they want profits from after-sales services to cover the overheads on the rest of their dealerships. Strategically, they plan to double the size of the business and bankers and shareholders have already agreed to back significant acquisitions. The hunt for such purchases is increasing in importance now a change in European competition rules means bigger dealership groups will have greater power at the expense of the car makers. If Lookers succeeds in bulking up, it can continue to grow profits strongly; if it fails, it will undoubtedly attract a predator. Either way the shares, down 6p to 185.5p are worth holding.

Hold CMG while the risks are still high

André Agassi and Steffi Graf's multimillion-pound advertising campaign for picture messaging is just the start of the roll-out of these new mobile services. There is a lot of money riding on their success, not least for CMG, the Anglo-Dutch group whose software powers this new generation of services for some of the world's biggest mobile operators.

So might it now be time to buy back into CMG shares? It is tempting, given the stirrings of a rally that have appeared to develop in recent days, and the 19 per cent rise yesterday to 77p, when the company revealed its mobile messaging software division had moved unexpectedly back into profit.

But the surprise profit was more to do with early shipments of software to Hutchison, which is setting up the first third-generation mobile network in the UK. CMG warned it won't be making any more sales overall than had previously been expected. In fact, traditional text messaging software remains a tough market, even after some of the overcapacity of the boom years has been worked through.

And then there is the bigger IT services arm of CMG, which accounts for 80 per cent of group sales. All of the Netherland's big banks are customers, and many government departments, too. In common with others, CMG has been focusing its sales effort on the public sector as the economic slowdown means stagnating sales elsewhere. But the key phrase is "in common with others"; competition for government contracts is suddenly fierce, and there could be pressure on margins.

So the risks are still high, despite CMG's sterling efforts to cut costs. On 14 times forecasts of this year's earnings, the shares are only a hold.

News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
PROMOTED VIDEO
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
arts + entsBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
News
Two giraffes pictured on Garsfontein Road, Centurion, South Africa.
i100
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
News
i100
Arts and Entertainment
arts + ents
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Morrissey pictured in 2013
people
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features playground gun massacre
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices