CityWire.co.uk: Shell short of friends? look who's buying

By Graeme Davies, Companies Correspondent

Published: 07:39 Fri 26 March 2004    

The management of the company may be as popular as rain at a cricket match, but Shell has found a fan in one of the country's most respected fund managers.

Nigel Thomas has bought shares in the oil giant as they reel from the growing scandal over its reserves policy.

A-rated Thomas has built a 1.1 million share stake, equivalent to 1.6% of his Framlington UK Select Opportunities (SHEL) fund. This is underweight the FTSE 100 but is in keeping with Thomas' policy of not holding more than 2% in any stock.

Like many in the City Thomas wants Shell, which this month sacked Sir Philip Watts as chairman, to simplify its Anglo-Dutch corporate structure.

However, he said: 'Deep down there is a strong cash flow business there although I'm not expecting it to pull up any trees; it's a long term call.'

He added: 'From a demand and supply point of view oil is attractive, the economics are attractive. There has been under investment into oil and gas in recent years which may now change.'

Thomas' affection for the oil and gas has been boosted by his holdings in Cairn Energy (CNE) and Premier Oil (PMO), two of the sector's hot stocks this year.

Thomas said he had a 'fairly bullish view' on UK stocks and the UK economy and has kept the £232 million UK Select Opportunities fund almost fully invested.

He said: 'We are in a cyclical bull phase with sweet spots. I foresee the cyclical bull phase lasting perhaps 18-24 months so it has another nine or maybe 12 months of equity prices continuing to improve.'

Of the 74 holdings in his fund Thomas has 25% in the FTSE 100, 30% in the FTSE 250 and 44% in small companies. Among the top stocks he picks only his favourites and does not follow any index weighting rules. Currently he likes Xstrata (XTA), Anglo American (AAL), Centrica, BP (BP.) and Johnson Matthey (JMAT). He also likes Tesco (TSCO): 'Its still a good growth story for its non-food and convenience operations.'

One of Thomas' major themes is mergers and acquisitions activity. 'Consolidation is a global trend and will carry on for some time. He is particularly keen on the motor dealer sector: 'There is talk about further rationalisation so I hold Inchcape (INCH), Pendragon (PDG) and Reg Vardy (VDY) who are more likely to be hunters than the hunted.'

In the housebuilding sector he holds Westbury (WBY) and Crest Nicholson (CRST) and thinks Persimmon could be a likely consolidator in the sector. He also holds mmO2 (OOM) which has been approached by Dutch company KPN and Standard Chartered (STAN) where talk of a major stake being made available has fired up takeover speculation.

Thomas' Framlington UK Select Opportunities unit trust's Framlington UK Select Opportunities top 10 holdings at the end of February were Cairn Energy, mmO2, Protherics, Pendragon, BSkyB, Premier Oil, LogicaCMG, Parkdean Holidays, BP and Centrica.

In the 18 months since Thomas took over the fund he has produced a return of 23.8% after charges compared with his peers in the UK All Companies sector who have returned 14.2% and the FTSE All Share which is ahead by 14.9%.

http://www.citywire.co.uk/partner/default.asp?section=0&vid=63836