Rexam CLUB HISTORY COMPANY NEWS Rexam worth a kick at the can Questor 08 November Rexam announced the latest stage of its move from paper to drinks cans last week with the acquisition of Latasa, Latin America's largest can manufacturer, financed partly through a 2-for-11 rights issue at a deeply discounted 255p. The acquisition will firmly establish the company as the world's number one can maker with a market share of 23pc and production of some 50 billion cans a year. That's enough fizzy drinks to rot your teeth a million times over and certainly enough beer to cause a hangover. But at a price of £272m, it certainly doesn't look as if the deal will leave Rexam nursing a sore head. Brazil's economy has been shaky of late and the market has declined. But all indications are that President Lula's election has injected much needed stability into the country, and analysts are looking for high single-digit growth in the can market for the next few years. Cans still only account for a small part of the market, and there is much share to be gained from the switch to cans from bottles, which still rule the roost as the favoured way to package drinks in South America. Rexam shares have marked time recently, largely due to fears of a large acquisition in the US and problems with the German recycling initiative. At 415p this week, they trade on a reasonably cheap multiple of 12.4 times this year's forecast earnings - adjusted for the rights issue - and carry a prospective dividend yield of 4.6pc. Now that a further large acquisition looks unlikely, and the German problem appears to be on course for a resolution, holders would be well advised to take up their rights, despite the undeniable macroeconomic risks of the deal, while those who have so far stayed on the sidelines should certainly consider buying in. Rexam is a defensive packaging company. The company yields 4.7%, which is twice covered and is on a historic PE of only 10.6. It has successfully finished its three year restructuring programme and the business looks in good shape to benefit from the improving economy. Having said this, we are not expecting the share price to move forward aggressively, unless it successfully incorporates a price increase for its canning division. The shares look to be worth closer to £4.50-£5. Visit the company website Top of page