Investment: Rexam still in a strategic hole

REXAM, the packaging-to-building materials group, has been running hard to stand still amid a sharp slowdown in many of its markets.

A look at yesterday's interim results proves the point. Coated films and papers, Rexam's biggest division, posted a fall in profits due to the Asian crisis and a collapse in the electronics market. Industrial packaging was down due to the strength of sterling and poor demand from UK manufacturers. Printing was hit by problems in its Brazilian telephone card operations. There were a few bright spots - healthcare, beauty and food packaging - but the overall result was a 5 per cent slide in earnings to pounds 87m.

But Rexam cannot blame this uninspiring performance entirely on external factors. The company has been in a strategic hole for some time now, as it tries to refocus on its core international packaging and coated film and papers businesses. The logical conclusion would be to dispose of the printing and building operations and acquire more in the core areas. The company sold around pounds 300m of businesses a year ago, but there is still a lot to go and disposals prospects do not look good given the current malaise in the printing and building markets.

Acquisitions have also been hard to come by as Rexam was outbid in a couple of recent deals. The management has responded by returning more than pounds 260m to shareholders and by hinting that it will buy businesses in the next six months. But that still leaves Rexam with the tag - and the rating - of a conglomerate which makes everything from brown boxes to window frames.

The shares have slumped from a year's high of 349.5p and, after yesterday's 2.5p slide to 209p, they trade on only nine times 1998 expected earnings of pounds 184m. Despite the bargain-basement multiple, they are hardly worth chasing.