Investment Column: Rexam's recovery still has some fizz
Tuesday 12 April 2011
Our view: buy
Share price: 372p (-0.5p)
The packaging company Rexam highlighted the scale of its ambition in Brazil yesterday by unveiling plans for a new beverage plant in the country's northern region.
The new plant will be operational by the middle of next year and Rexam says it will have a capacity of 1.2 billion cans. This will help the group, which makes cans for Carlsberg and Red Bull, achieve total capacity of 14 billion cans by the end of 2012, up from 11 billion at the start of this year.
The move reaffirmed Rexam's long-term commitment to Brazil, one of the fast-growing BRIC countries, alongside Russia, India and China.
However, Brazil is just one part of the recovery story at Rexam, which has around a 100 plants in more than 20 countries, following a slump during the recession. The group was forced to launch a £350m rights issue in July 2009 and canned its interim dividend after it posted a £30m half-year loss.
As consumers tightened their purse strings, the City was also concerned about Rexam's debt mountain. Since the fund-raising, however, the group has been busy turning around its sales and profits.
In February, it reported a 45 per cent uplift in underlying profits to £412m for 2010, aided by a tight leash on costs. The company is reducing its net debt, and highlighted its return to form with a total dividend of 12p.
We think this recovery story still has legs and, coupled with the affordable valuation of under 11 times forward earnings, leaves ample scope for upside gains.
Our view: buy
Share price: 400.1p (+15.5p)
As we have remarked before, RWS does not lend itself to easy comparisons. It occupies a niche, searching and translating patents and providing other intellectual property-related services. On the upside, however, this specialist focus has helped it to secure a leading position in what the analysts at Peel Hunt characterise as "a global, stable and growing market".
Yesterday's half-yearly trading update confirmed the group's strengths, with revenues rising by a healthy 10 per cent. The performance was underpinned by a strong showing from the group's translation business, which accounts for around 70 per cent of revenues.
But should you buy? The lack of comparisons with other companies does not help and makes us cautious. That said, RWS is clearly performing well, boasts a strong balance sheet with nearly £20m in net cash at the end of March and, in what we see as the clincher, trades on a thin enterprise multiple of under 4 times. Throw in the robust prospective yield of around 4 per cent, and we reckon this stock could be well worth a punt.
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