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.

News
people

Arts and Entertainment
JJ Abrams' seventh Star Wars, The Force Awakens
filmsThe first glimpse of Episode VII has gone online after weeks of anticipation
News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
The cast of Downton Abbey in the 2014 Christmas special
art

Presents unwrapped, turkey gobbled... it's time to relax

PROMOTED VIDEO
News
ebooksNow available in paperback
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

Citifocus Ltd: German Speaking Client Specialist

£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

Citifocus Ltd: Performance & Risk Oversight

£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

h2 Recruit Ltd: Telesales Executive - Cloud Software/SaaS - £37,000 OTE

£25000 - £37000 per annum + benefits: h2 Recruit Ltd: Are you seeking to furth...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game