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.

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
ebooks
ebooksA celebration of British elections
  • Get to the point
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

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before