Hobson: I Won't Be Selling My Shell Shares

THE WEEK: Shell shareholder and Morningstar columnist Rodney Hobson says he will not be selling his stake but will stick it out for the long term and continue to collect the dividends

Rodney Hobson 10 April, 2015 | 10:59AM
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Just when it seemed that oil and gas was drowning in its own misery, up pops Royal Dutch Shell (RDSB) with a bid for BG Group (BG.) to set the sector alight. Investing is never dull for long, as the biggest deal ever between two British companies has proved.

Anyone holding BG shares should probably hang on

Since the turn of the millennium we have rarely got this sort of megadeal that was more common in the 1980s and Nineties. The last one to inflame passions was Kraft’s bid for Cadbury in the food sector. This one will be less controversial but it does offer some thoughts worth considering.

Do the experts within the industry know more about the valuation of companies than the market? Do they know something we don’t? In theory, everything that can affect share prices is supposed to be out in the open but life isn’t like that. Those in the industry will always have a better feel for what is going on – although, being human, they are not always right.

So investors were right to assume that the bid was a signal that the sector is now seriously undervalued. Low oil prices will not last forever and we should be thinking about the future of energy stocks, not the very recent past. Those looking beyond the next few months would be right to consider searching through the oil and gas sector for recovery plays.

That is not to say that BG was worth 50% more than the stock market valuation prior to Shell’s bid. As always, the onus is on the bidder to justify the price and that’s an awful lot of job cuts in Aberdeen to push through without damaging the business.

As a Shell shareholder I am deeply concerned but there was little chance to get out once the bid was announced and the shares opened best part of £2 lower. I don’t think it’s worth selling now. I will stick it out for the long term and continue to collect the dividends.

Anyone holding BG shares should probably hang on and accept the offer, taking cash and Shell’s devalued shares. You, at least, are getting more out of this than you expected at the start of the week.

Elsewhere in the sector it is probably also right to hang on, partly on expectations of recovery but with the added spice that there could be more bids. As always though, that advice does not apply to every single stock. You have to consider the individual merits of each company as well.

Unorthodox Greek Politics

The Syrizia government in Greece has more about it than many people reckoned, including, one suspects, other European leaders. The prime minister and, more particularly, the finance minister are playing a canny game that has once again averted economic disaster, if only for a few days.

Russian president Vladimir Putin may also have met his match. Fears that he would play the Greek leaders along against the rest of the European Union look increasingly misplaced. It is the Greeks who are playing both sides along in difficult circumstances.

With the repayment of an IMF loan that fell due this week, Greece has once again put off the day of reckoning. Meanwhile the Eurozone as a whole continues to recover. Growth may be sluggish and uneven but it is still growth and it puts off the risk of other southern European countries suffering contagion.

We in the UK benefit from European prosperity. The latest developments are reassuring for investors.

Invest in Hays While the Sun Shines

I have topped up my holding in recruitment group Hays (HAS) after a really great trading update was followed by a sharp fall in the share price. Hays is doing well all round the world despite figures being affected by adverse currency movements. Europe is growing strongly, particularly France where dire warnings of economic collapse now seem misplaced.

Hays is actually gathering momentum and the next quarter should be even better. Those who sold the shares will soon regret their haste. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.