Leslie Van de Walle knows all about oil: before joining Rexam as chief executive, he ran the retail business of Royal Dutch Shell.

That has not stopped shares in the packaging group falling by more than a quarter since May amid fears that surging oil prices will take their toll of full-year profits – especially at Rexam’s recently enlarged plastics business, where oil-based resins are the biggest raw material.

But as yesterday’s first-half figures show, the company – which has been routinely wrongfooted by commodity costs in the past – appears to be coping well with higher energy prices. Pass-through contracts mean that 80 per cent of the cost increase in resins – on which Rexam spent £170 million in the first half – has been borne by customers. Further, last year’s $1.8 billion (£908 million) acquisition of the plastics division of Owens-Illinois has given Rexam increased purchasing power.

That means that the biggest hit from higher oil prices came from freight and energy costs, which rose by £23 million. However, Rexam is confident that it should be able to recover some of that sum in the second half of the year. The effect of higher aluminium prices – beverage cans still account for 70 per cent of sales – has been mitigated by renegotiated pass-through contracts in Europe and increased hedging.

Combined with the reassurance that Rexam is on track to meet full-year forecasts and a 5 per cent increase in consensus estimates, the shares rose by nearly 10 per cent.

There were inevitable weak spots. Can volumes in the US were flat – despite an easy year-on-year comparison from last year’s strike-related dip in output – reflecting continued weakness in fizzy drink sales and prompting Rexam to cut US production capacity by 9 per cent. The company also provided a reminder that about a quarter of its plastic packaging sales might be considered economically sensitive – most of the containers, caps and closures it supplies are for premium products, which are vulnerable to trading down by consumers.

But the broader trends on which Rexam sets out its stall – strong volume growth in Europe and emerging markets such as Russia and Brazil – remain intact. That trajectory underpins a forecast 50 per cent rise in earnings over the next three years.

Rexam’s high financial gearing remains a concern – it has net debt of £1.9 billion against a stock market value of £2.5 billion – although the company remains comfortably within its borrowing covenants. So, too, is the prospect that it will overpay in any bidding war for the beverage can business of Anheuser-Busch, which InBev is expected to sell if its bid for the US brewer succeeds. However, at 380½p, or ten times current-year earnings, and yielding nearly 6 per cent, Rexam – a constituent of the Tempus Ten – remains a solid hold.

Aviva

It was not just policyholders of Aviva – who are in line for a collective £1 billion cash windfall – who might have felt content yesterday. Shareholders, who will receive nearly one third of the orphan assets being redistributed, had rare cause for relief, too. Shares in Britain’s biggest insurer, which have fallen 40 per cent since last September, rallied nearly 9 per cent.

That they did was not wholly down to the long-awaited resolution of the fate of Aviva’s inherited estate. New business profits in the first half, although helped by one-off transfers in the Netherlands and Spain, were stronger than expected, up 28 per cent in the US and reassuringly flat in the UK – which might be considered an achievement. Overall, group operating profit was up an above-forecast 12 per cent.

That is not to say that Aviva has proved immune to the credit crunch. Adverse market movements have reduced the company’s surplus capital from £2.9 billion to £1.8 billion over the past six months. However, stock markets would have to fall a further 40 per cent before it would have to contemplate raising fresh capital or cutting that dividend. On a prospective yield of 7.3 per cent at 507½p, the payout is attractive in itself. Poor sentiment on insurers – little better than on banks – is unlikely to lift swiftly. Even so, hold.

Provident Financial

Bad times for high street banks are good news for Provident Financial, the doorstep lender that yesterday reported a 34 per cent increase in first-half pre-tax profits. Provident lends to Britain’s unbanked, with an average loan of £300 made by agents who visit customers weekly to collect repayments. It also extends credit to the low paid through its Vanquis Bank card. Profit was £51.3 million in the six months to June 30, with £50.2 million coming from the home credit division, which reported a 7 per cent increase in customers. Provident is benefiting from tighter underwriting at mainstream lenders that is pushing less desirable borrowers in its direction. But bad debts as a percentage of revenue fell in both home lending and at Vanquis. Its agents’ home visits mean it has an up-to-date insight into its customers’ financial circumstances. Agents are paid only for the loans they collect, so the impetus for irresponsible lending is reduced. Also, most of the home credit business’s customers have a diversified income – coming from both employment and benefits – so are better positioned to withstand an economic downturn. The fact that just 11 per cent have a mortgage should provide protection from house price deflation.

The company is well funded with £380 million in undrawn and committed funding facilities through to March 2010: enough to grow its loan book by more than a third. Those attractions saw the shares rise 9 per cent to 894½p, or 13 times earnings and yielding a secure 7.1 per cent. Buy on weakness.

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