The facts changed materially during the short holding period. Management's confidence in the medium-term outlook for demand withered away and led to a rights issue and dividend cut, in stark contrast to net debt reductions and successful debt refinancing reported as recently as May. Whilst the industry may see further consolidation, the likelihood of Rexam participating profitably in this trend is now much smaller. The stock was sold for a 20% loss, taking the rights issue into account.
Rexam is the global number two consumer packaging business, manufacturing beverage cans and plastic packaging. The industry is an oligopoly and much of the excess capacity has been cut by the main players in recent years. Risk of raw material price volatility has been transferred to customers by pass-through and inflation clauses in new contracts. Therefore, absent a price war amongst its hitherto rational competitors, the company can concentrate on increasing profitability through its ongoing efficiency programme. The dividend yield of 6% provides a solid floor in the meantime.
| Sedol |
Type |
Price |
Date |
| 0425045 |
Sell
|
£ 2.297 |
06/08/2009 |
| 0425045 |
Buy |
£ 3.35 |
09/02/2009 | |
