The Investment Column: Can-maker Rexam has the mettle to withstand slowdown

National Express; Sterling Energy


Our view: Buy

Share price: 447.75p (19.5p)

Aluminium cans aren't made for toasting success, but from the point of view of investors, it probably does not get any better than Rexam, the world's second biggest consumer packaging group. The company is about as far away from the credit crunch as you can get, which makes it a natural defensive play. And after recovering from recent stumbles, now is the time to buy.

The group had a pretty disastrous 2007 by its own steady-as-she-goes standards when strikes at its US plants and its unhedged position against surging aluminium prices in Europe led to a 27 per cent drop in earnings. However the market for cans, which makes up about 70 per cent of the group's sales, is stable. And even in a heavily consolidated industry, watchers think that Rexam is undervalued. An independent analyst at Seymour Pierce said Rexam "measures up operationally and is the most efficient firm in the sector".

The company has no direct competitors in the UK, where the average citizen drinks about 120 soft drinks a year, and is valued well below Ball Corp, its US rival, say watchers.

UBS reckon earnings per share will increase by 30 per cent in 2008, and while that is in part due to the group's poor earnings performance in 2007, the analysts believe that the share price will hit 510p this year. That growth reflects the extra £20m profit the group expects to generate from a stabilising dollar and a strengthening euro versus sterling.

Seymour Pierce does not take currency benefits into account when recommending a buy, saying that earnings per share will rise to 34.8p in 2009 from 28p last year, while agreeing with the UBS target price of 510p.

Each year every American consumes 360 drinks from cans, and while that sector is saturated, Rexam claims a steady 24 per cent market share. Other areas of the world, particularly the Middle East and Africa, are seeing double-digit growth.

Last year's disappointing numbers are unlikely to be repeated this year – yesterday's first-quarter results suggest a much happier time. The company has renegotiated contracts in Europe, enabling it to pass on the cost of the aluminium to its customers, as it does already in the US. Buy.

National Express

Our view: Buy

Share price: 931.5p (5.5p)

Get on the bus. National Express, one of the UK's top transport groups, informed investors yesterday that things are ticking along just fine thus far this year. Amid the flurry of doomsday forecasts from property companies and retailers, chief executive Richard Bowker's bus, coach and train giant seems to have avoided any speed bumps thrown up by the slowing economy. Bus and coach revenues were up healthily, in line with analyst expectations, while rail did slightly better.

There are some leaves on the line. Passenger numbers on the Stansted Express train service to the airport have weakened. Squeezed by above-target inflation and worries about job cuts, people are apparently less willing to splash out on the weekend breaks abroad that are the speciality of the Essex airport.

The related argument however is that as more people stay in-country, they are more likely to jump on a coach for a quick break away. Perhaps that is why National Express's mood remains uncommonly sunny. It reiterated its pledge yesterday to increase the dividend by 10 per cent through each of the next three years.

Any worries about being hit by a UK slowdown are also tempered by the company's growing international operations. After its acquisition last year of Continental Autos, it is now the largest private-sector transport group in Spain, where turnover has increased by the predicted 5 per cent while costs were taken out through the integration of the business.

Since reaching a high of 1318p per share in October, the shares have shed 30 per cent amid worries about the economy and the soaring price of petrol. The company now trades at a discount to the sector despite solid prospects. Get on while you can. Buy.

Sterling Energy

Our view: Hold

Share price: 9.47p (+0.31p)

Sterling Energy has decided that the United States is not the land of opportunity after all. The company reckons it is actually better off somewhere rather more hostile: Iraq.

The oil and gas exploration company aims to sell its operations in America and on Kurdish northern Iraq, Madagascar and Gabon. The group has faced increasing costs associated with drilling in the US and has come close to missing covenant requirements in its $153m of syndicated bank debt, something that the chief executive, Graeme Thomson, argues has driven the share price down.

However, for investors willing for a white-knuckled ride in the next couple of years, Sterling Energy might just be the group. There may be 2 billion barrels of oil in its Kurdish fields.

Analysts at Oriel Securities point out that sites in Iraq and Madagascar are not actually pumping out any of the black stuff yet. As a result "the company is very difficult to value". Hold for now.

Start your day with The Independent, sign up for daily news emails
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

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor