BG Group - Holding Out For A Hero

BG Group: This is one of the great stock market disappointments of recent years, with a poorly played hand of cards, despite including prime positions in deep water Brazil and Australian LNG. Results’ announcement after results’ announcement has included delays and production disappointments. So now they have the new manager signed from abroad to improve their performance. Helge Lund has been persuaded to leave Statoil to join BG, with the challenge of a job at a smaller organisation hopefully as motivating as the some ten-fold increase in remuneration.

These Third Quarter results were again a mixed bag: Brazil better, Kazakhstan worse, North Sea slower and Egypt coughing up $350m of back payments. Mind you, that still leaves $1.2bn outstanding of Egyptian receivables. Brazilian production is now past 100/- bpd and the first Australian LNG is due before the end of this year. (The somewhat unexpected re-election of centre-left Dilma Rousseff as Brazilian President is a small negative for sentiment.) Overall current 2014 production guidance has been held. For now though, investors are looking beyond these results to see how Lund shuffles his pack on arrival in March 2015, although there is no reason yet to think that utterances or action will ensue quickly.

Currently, eps forecasts for the next couple of years are in the 70p ball park, for a broad brush PE of 14.3x at 1000p and a 19p dividend for this year. That is a yield of 1.9%, with decent cover allowing scope for more increases, barring some major strategic upheaval. Which, of course, may just happen. For income investors none of this looks that compelling yet, but a decent business meeting a high quality Chief Executive is well worth following closely.  (Neil Cumming, 29th October)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

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