-- The NEW Official Alizyme Thread! --

December 31, 2003



Tempus

Our on-target Ten outpace FTSE all-share with a 50% increase
By Robert Cole

THE Tempus Ten to Follow for 2003 rose in value by 50 per cent. In doing so, this smallish portfolio of shares met all three of the pre-set performance targets.
First and most importantly, the Ten delivered an increase in value in absolute terms. The performance numbers take no account of dealing fees, although nor is any allowance made for dividends paid, which balances the omission. But the scale of the advance means that investors who got in at start-of-year prices will be considerably richer.

Secondly, the Tempus Ten delivered gains more handsome than those that would have come had investors decided to stash cash at the bank. The Bank of England base rate of interest averaged a shade under 3.7 per cent in the year. In the context of the returns achieved by many investors last year, a profit of 3.7p in the pound looks paltry. But many investors would have welcomed such a return in 2000, 2001 and 2002 as average share prices sank. And the achievement of outrunning returns on virtually risk-free deposits is not to be sniffed at.

The third target met, and bettered, by the Tempus Ten comes in terms of relative performance. The professional investment community often makes too much of relative performance statistics. Relativity is certainly too readily used to mask poor results. But it is nonetheless pleasing to report that the Tempus Ten for 2003 recorded gains above the FTSE all-share average.

Where the Tempus Ten are up 50 per cent, the FTSE all-share index is ahead by 16 per cent. Admittedly the UK market rose less impressively than many bourses around the globe. But the Ten also delivered results significantly above the 20 per cent advance of the FTSE world index.

Tempus authors can pull one other smirk of self-satisfaction at this point. With 2003 results nestled nicely in the bag, we can say that three of the last five Tempus Ten selections have come up trumps. It is true that we had a horror in 2001, when we were down 33 per cent while the index was off only 16 per cent. We also did worse than the UK benchmark in 2002, although we underperformed by only two percentage points in that year. But in 1999, 2000 and now 2003 the Tempus Ten selections have run ahead of the index and delivered bigger absolute returns than could have been achieved through bank deposits.

Moreover, over the past five 12-month periods, Tempus Ten selections have delivered a net gain of 33 per cent, while the average annual return achieved by investors who tracked the FTSE all-share index across each of the five years is negative to the tune of 14 per cent.

Alizyme, the biotechnology concern, led the Tempus Ten charge for 2003. Only seven stocks among the largest 750 comprising the FTSE all-share fared better. Alizyme’s stock soared by 405 per cent as the company delivered a steady stream of good news on the drugs it is developing to treat irritable bowel syndrome and obesity. Alizyme’s success is attracting the interest of marketing partners around the world, and the company has also taken the opportunity provided by share price strength to inject capital into its balance sheet through a placing of new shares.

It was largely thanks to Alizyme that the Tempus Ten outshone the FTSE all-share and delivered an overall 50 per cent increase in value. Without Alizyme, the Ten would have advanced by a more pedestrian 10 per cent. But four of the other selections produced returns ahead of the index. Close Brothers, the banking group, benefited from a recovery in confidence across the financial markets. Start-of-year investors also noticed that Close stock gave a dividend yield of 5 per cent. The shares rose in value as investors chased that attractive income.

Shares in British Land, the commercial property company, benefited as the gloom hanging over corporate Britain lifted and companies became more willing to take space, or at least think about taking more space. The promise by John Ritblat, the chairman and chief executive, to split the top roles also pleased governance junkies.

After peaking at 399p in March 2000, shares in Vodafone, the mobile telecoms group, tracked steadily downwards until the autumn of 2002. By the start of 2003 the stock had recovered a little ground from lows. But during the year investors rediscovered their faith in the long-term earnings potential of wireless communications and the shares climbed to 137p, adding one fifth to their value.

One might have thought that shares in WPP, the advertising group, which is a prime candidate to gain from economic revival, would have done a bit better than adding 15 per cent. And given the continuing fuss over Private Finance Initiatives and Public Private Partnerships, shares in Serco, a specialist in these fields, could have done worse than rising 19 per cent. Shell, the oil group, and Scottish and Southern Energy, the electricity generator, marked time, but they were selected this time last year to provide ballast in case of continuing economic and stock market woe. Hiscox, the Lloyd’s of London insurer, was disappointing. It is a well-run business, but investors are not convinced that companies of its ilk operate on reliable and sustainable business models.

Far more disappointing was Matalan. This time last year a newish management team was tucking its knees beneath the boardroom table and expounding sensible strategies about how it would broaden the appeal of the discount retailer. But Paul Mason, the Asda-trained chief executive, left the company after appearing to fall out with the chairman and founder, Roger Hargreaves. The management dislocation that ensued cannot have helped the company to deal with the harsh trading conditions of autumn and early winter, conditions that obliged it to issue a nasty little profit warning this month.

Fortunately the successes elsewhere made up for the Matalan embarrassment. And how. But while a 50 per cent rise gives good reasons to write home, it does create a problem for the Tempus team. It is a pleasant problem to have, but what do we do for an encore?

Find out how we tackle this thorny issue, and discover the identity of our Ten to Follow for 2004, in The Times tomorrow.