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Share of the month update

The Times: Share of the month update

Saturday June 25, 2005

WE ARE off to the races again in the stock markets, with signs of a resurgence of super growth in China dispelling earlier fears of global economic slowdown. Renewed investor confidence and massive liquidity are driving up prices of shares despite the surge in the price of oil to $60 a barrel.

The market has, for now, shrugged off concern at the high cost of energy and is focused on putting money to work in good shares. Oil shares are the hottest. Hitherto, they hardly felt the heat from the higher price of oil. Now they are bid up but could still go higher.

Figures from BP indicate that energy consumption rose 4.3 per cent last year — the largest percentage increase since 1984, courtesy largely of Asia’s fast-growing economies.

Lord Browne of Madingley, the BP chief executive, predicts that oil will remain at more than $40 a barrel at least for the next three to four years, when new supplies come on stream. Opec’s attempts to temper the price with higher production quotas have failed so far. Supply is tight, not least because refining capacity is limited and demand is strong.

I will hold all of my magnificent seven energy investments: Investec Global Energy, ML New Energy, ENI, BG, Premier Oil, Schlumberger and Shell. The latter’s unification with Royal Dutch should have no immediate capital gains tax impact.

I will receive new Royal Dutch shares for my existing Shell shares. The “new” shares will take the original base cost of the old Shell. A chargeable gain may arise on any subsequent sale of the Royal Dutch shares. I am happy to have and to hold Shell. The shares are catching up with those of their better-rated peers.

Shares in Clapham House have languished but the business is firing on all cylinders to expand the most successful of three mid-priced restaurant formats, the prototypes of which Clapham House has acquired and is now incubating. The three are the Real Greek, the Bombay Bicycle and Gourmet Burger Kitchen. Hold.

Cheers to Majestic Wine for its great results, boosted by stronger sales of higher priced wines. Hold.

Capital & Regional, the leisure and retail property investor and manager, has proved a great buy, notably since the recent rise in its share price amid market talk of a takeover. Management is capable and keen to expand the business. But at this price, I’ll take profits. Sell.

Pfizer has plugged its pipeline with two late-stage experimental anti-infective treatments via the $1.9 billion

(£1.04 billion) cash purchase of Vicuron. Pfizer’s strategy is to use its fabulous cashflow to buy new products to offset patent expirations on key drugs in the next few years.

This year’s earnings will be dogged by the long-expected losses of exclusivity on four medicines, along with the regulatory action surrounding Cox-2 inhibitors, which are painkillers. However, the company “fully expects to return to double-digit growth in adjusted earnings in 2006, and continue that growth in 2007”.

Pharmaceutical and biotechnology shares are doing better, so Pfizer, GlaxoSmithKline, Eli Lilly, Serono and Framlington Health Trust are all a hold.

Allied Domecq is going, going and virtually gone to the agreed 670p-a-share bid from Pernod Ricard, the maker of Chivas Regal whisky and Martell cognac. This is a world-class French company and, having sold half my Allied shares for nearly 700p in the market, I will opt to exchange the remainder for shares in Pernod, thus deferring my capital gains tax liability and riding the group ’s future growth.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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