THE LONDON TIMES: Tempus Ten end year with a bang despite early jitters: “Shares in BP, the UK’s biggest quoted company, were helped by the rising oil price. Contrasts with the managerial problems at Shell…” (ShellNews.net) 31 Dec 04

Tempus

By Robert Cole

THE Tempus Ten to Follow for 2004 produced a 29 per cent gain. Five of the selections rose more than 40 per cent and two of the other three gainers experienced double-digit increases. Tempus Ten risers outnumbered fallers eight to two.

The 29 per cent aggregated average portfolio performance number takes no account of dividend income received and does not take account of dealing costs. It compares with a 9 per cent advance for the FTSE all-share index.

Including dividend income but excluding dealing costs, the Tempus Ten for this year rose 34.3 per cent in value. The total return on the FTSE all-share index was 12.8 per cent. The 29 per cent capital-only advance for this year comes after gains of 39 per cent and 6 per cent in 1999 and 2000; losses of 33 and 28 per cent in 2001 and 2002; and a gain of 50 per cent last year. Over six years the Tempus Ten produced an average annual increase of 7 per cent, compared with an average annual decline of 2 per cent for the FTSE all-share.

In the most recent 12-month period, the Tempus Ten got off to an unpromising start. Even before the end of January one stock, Tate & Lyle, issued a profits warning that sent its shares tumbling 10 per cent, well below the 311½p at which they started the year. Fortunately, the disappointment was not a sign of things to come.

Admittedly Rank, the leisure group that presides over the Hard Rock brand, and Lloyds TSB, the bank that likes to say to “yes” to paying a maintained dividend, failed to get very far, although count in the dividends and Lloyds investors are looking at a respectable 15 per cent return.

And yes, shares in Imagination Technologies, the company behind the PURE digital radio brand, went backwards. They had a cracking first quarter, rising 35 per cent in February on the back of encouraging news of the licensing of new technology to manufacturers. They faded, however, in the latter part of the year as the enthusiasm — which may, in truth, have been overcooked — reversed. A summer cash-raising exercise did not help, even though it left the firm in a robust financial position. By the end of the year Imagination investors were nursing losses of 11 per cent.

But at the other end of the scale mmO2, the mobile phone company that used to be called Cellnet and used to be part of BT, sustained its handsome gains. The shares began the year at 77p and ended on a record high of 123p. After several lean years sentiment towards the mobile sector improved and talk of a bid from KPN helped mmO2. What helped more was that it demonstrated an ability to generate cash profits and pay real dividends off sales that appeared likely to chart an upward path.

Cambridge Antibody Technology caused a few palpitations. Healthcare companies, especially large pharmaceuticals, have had a forgettable year. CAT, a biotechnology development firm, gave its own profits warning in November, saying that one of its drugs-in-development had posted disappointing test results. But news that it won a landmark court case against Abbott Laboratories, a larger rival, over the ownership of certain revenue streams, propelled the stock price to a record 740p. It finished the year up 52 per cent at 715p.

Workspace benefited from the surge in popularity of property company shares. The FTSE real estate sector added 40 per cent. However, Workspace demonstrated its continued ability to capitalise on demand from smaller firms to occupy its properties. A key attraction of the Workspace offering is that the secondary locations make them affordable. Workspace shares also ended 53 per cent higher.

The performance of Tate & Lyle shares is among the most surprising. At the outset it was thought that the stock was up for a re-rating — not least because it looked increasingly likely that it would pay a sustained dividend and the 6 per cent dividend yield at start of the year made the shares look undervalued.

Having calmed nervousness created by the profit warning and the input cost questions lying behind it, Tate fought back. It scored success with Splenda, a non- fattening sweetener. Tate shares ended the year 52 per cent up and 73 per cent above the low for the year.

Shares in Communisis, the printing company, had a good year, too, as the company produced profits from an increasingly competitive industry. Its efforts to change from printer to print manager also helped. Its shares ended 42 per cent higher.

National Grid Transco, the gas and electricity distribution company, continued to impress. It has a strategy of acquiring decent utility assets in Britain and the US, improving the efficiency and then selling them. The market might have shown more appreciation but the shares still ended up 24 per cent.

Shares in BP, the UK’s biggest quoted company, were helped by the rising oil price. Contrasts with the managerial problems at Shell, BP’s age-old rival, also enhanced respect. The shares did not do any better than they did partly because they were fairly priced to begin with. Worries, partly vindicated by the year end, that the oil price would fail to maintain inflated levels also kept a lid on the BP share price.

The Tempus Ten to Follow for 2005 will appear tomorrow.