Market Report: North American worries take the fizz out of Rexam

Worries over weakness in North American volumes weighed on Rexam, the beverage cans maker, which ended at the bottom of the blue-chip index last night.

Credit Suisse said the successful outcome of ongoing North American contract negotiations had "been a central piece" in its positive view on Rexam. Partly owing to the company's own bullish comments, the broker had high hopes for the talks. But recent newsflow suggests that the process is not going as well as hoped, with Rexam's half-yearly results confirming that "it is becoming clear that following these negotiations, volume in North America will be lower in 2011".

"This implies Rexam is losing volumes to its competitors, which we had expected to some extent," the broker said. "However, we had not expected [that] a combination of volumes losses and what appears to be moderate price increases would see Rexam 'planning for overall profits in the business to be comparable with 2010'. Our expectations called for a material improvement in earnings after a five-year period of weak margins in North America."

Credit Suisse went on to revise its recommendation on the stock to "neutral" from "outperform". Though offset in part by some support from UBS, which reiterated its "buy" view and 370p target price, the assessment sullied sentiment around Rexam, which closed at 316.5p, down 3.4 per cent, or 11.1p, last night.

Overall, a early weakness on Wall Street depressed the FTSE 100, which was broadly unchanged at 5,313.95, down 5.7 points. The FTSE 250, though also off the day's highs, fared better, ending 54.47 points ahead at 10,074.17. Earlier, the two indices had rallied following pleasing results from the likes of Reed Elsevier, which rose by 20p to 552p, BT, up 4.9p at 144.8p, and AstraZeneca, up 86.5p at 3,289p.

UBS strategists did their bit to lift the mood, revising their view on Europe to "neutral" from "underweight". "Marketing in three continents flagged that long-only global investors were holding back on allocations to Europe due to uncertainty surrounding economic growth, stress tests, [the Basel III banking proposals] and a fear of a Greek restructuring," UBS strategist Karen Olney said, noting that "at least three of the four have received a boost", with the stress test exercise concluded last week, the Basel committee moving to moderate its plans earlier this week and recent economic data surprising on the upside.

The miners were mixed, with some drawing steam from firmer commodity markets, but others falling prey to profit-taking. Kazakhmys was among the standout performers, swinging to 1,220p, up 23p, after issuing an update on production, while Antofagasta rose by 3.5p to 997.5p and Lonmin gained 21p to close at 1,580p. Xstrata, down 12.5p at 1,032p, and BHP Billiton, down 14p at 1,977.5p, were among the losers.

Gold producers also had little luck last night, with Randgold Resources easing by 25p to 5,665p and African Barrick Gold shedding 9.5p to close at 533.5p. The weakness came despite some strength in gold prices, with bargain hunters seeking to make the most of the recent pullback in the safe-haven metal. The equity performance was put down to profit-taking, as traders sought to bank gains.

Elsewhere, Northumbrian Water, the water group, which was broadly unchanged at 329.9p, up 0.3p, after issuing an in-line interim management statement yesterday, was cut to "neutral" from "overweight" at HSBC. The stock was also subject of some comment from UBS, whose analysts reiterated their "neutral" view, saying that they saw better value in United Utilities, down 1.5p at 560.5p, and National Grid, down 2.5p at 510.5p.

The housing sector managed to stand firm, with Barratt Developments edging up by 0.55p to 98.1p and Bellway adding 8.5p to 588p, despite some disappointing news on house prices and mortgage approvals. Taylor Wimpey, up 0.2p at 27.21p, also sidestepped a fall despite some bearish comment from KBC Peel Hunt. "Despite de-rating in recent weeks, the shares are not cheap," the broker said, repeating its "sell" view and adding: "We have concerns about covenants, refinancing, the sale of [its North American businesses], and another large equity issue. A focus on asset values has overstretched the equity, and we see a 'true' NAV [or net asset value], based on acceptable returns, of just 21p."

Rotork was supported by UBS, with the valve control systems specialist rallying by more than 7 per cent, or 98p, to 1,494p after the broker labelled it the "highest quality UK engineering company". "Its track record has been built around product design, which has enabled it to capture a leading market position in a niche industry," UBS said, upgrading its stance to "buy" from "neutral", with a revised 1,900p target price, compared to 1,400p previously.

Drawing on the results of an industry survey, the broker added: "For the first time, we have built a model of historical order input for Rotork and extrapolated the trend over recent trading. We believe Rotork's orders will be up as much as 20 per cent year-on-year in the second quarter and better than consensus expectations."