Investment Column: Rexam strikes the right note with a review of its personal care arm

BHP Billiton; Lamprell

Our view: Buy

Share price: 332.8p (+7.7p)

Rexam's shares were among the strongest on the FTSE 100 last night. The gains, achieved as the wider market headed south, came after Europe's largest manufacturer of beverage cans said it was trading in line with hopes, with strength in the cans division limiting the hit from weakness in its plastic packaging business.

There was, in other words, nothing eye-catchingly spectacular on the trading front – at least nothing that would explain the sharp jump relative to other blue-chips. To work out why the stock rallied as it did, we think it might be more useful to take note of Rexam's comments on the weaker plastic packaging division.

In particular, the company said it was "exploring all options" for the division's personal care arm, "including divestment". In English, this means the company is trying to get rid of the business, which, as Seymour Pierce points out, makes up around half of the plastic division's sales.

This is good. Getting shot of personal care would leave Rexam's plastics operation with the more resilient healthcare products business. Combined with the strong beverages arm, the company will be better positioned to deliver value to shareholders. And talking of value for shareholders, if Rexam does end up selling personal care, investors could be in line for "a major cash return", according to Bank of America Merrill Lynch. This is because the company is doing well with its debt target, and could afford to give shareholders a boost, which would come on top of the already very tasty 4.3 per cent dividend yield.

Now, before we come to our recommendation, we should admit that we bought in earlier this year, when Rexam was trading north of 370p. Since then, it has fallen back. Given the uncertain economic backdrop, we did think about sitting tight until our investment is back in the black. But the possible disposal changes everything in our view.

Rexam is a good business with a healthy yield and undemanding valuation multiples (which is why it's not a sell). It does, however, have its weaknesses. The fact that it is dealing with them, and the possibility of a further cash boost, makes its well worthwhile in these uncertain times.

BHP Billiton

Our view: Hold

Share price: 1,906.5p (-54.5p)

As the world's biggest miner BHP Billiton is especially exposed to this year's commodity price rollercoaster. Yesterday, the group became more cautious about its outlook for commodity markets, which is never good news. But it did insist that things are not as bad as they were during the first leg of the global financial crisis in 2008.

To add to the concern, however, BHP became the first of the big miners to highlight that customers are finding it hard to access credit. This adds to worries that the commodity markets are likely to remain volatile in the coming months. But BHP's sheer size is also an asset. Marius Kloppers was at pains to stress that, by being so diversified, the group would continue to trade profitably despite the headwinds.

To underline his point, Mr Kloppers said that BHP's iron ore, copper, coal, oil and gas businesses were performing well, while conditions were tough in nickel, aluminium and manganese.

This week, BHP threw its weight behind shale gas, the brave new fossil fuel hope that is blasted out of the rocks with a mixture of sand, water and chemicals in a process known as hydraulic fracturing, or "fracking". The group is to invest $4.5bn (£2.8bn) on developing its shale gas operation next year, following its $17bn acquisition earlier this year of Petrohawk Energy.

And although there are significant environmental concerns around fracking, the practice is widespread in the US and Poland and looks set to become big in Britain. BHP's interest in the field adds to the group's diversity, which is good for the investment case. The near term uncertainty in the commodity markets, however, makes us cautious. This is not a sell. But it's too early to buy.

Lamprell

Our view: Buy

Share price: 259p (-4.9p)

The oil, gas and energy services firm Lamprell issued a reassuring update yesterday, with the company expecting the results for the full year to be in line with market hopes. The release came on the back of some notable contract awards, including one from Jindal Pipes (Singapore), though that contract was not included in the order book figures posted yesterday. Lamprell said orders stood at around $1.2bn at the end of October.

As Evolution Securities pointed out, the firm is exposed to the fast-growing market for energy infrastructure projects, which bodes well for its own growth. The weakness in the share price since the summer, when Lamprell undertook a rights issue to finance the (sensible) takeover of Maritime Industrial Services, offers a good opportunity to add to our holdings.

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