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Daily Telegraph (UK): BG (aka Bid Gossip) is not likely to be gobbled up soon

Daily Telegraph (UK): BG (aka Bid Gossip) is not likely to be gobbled up soon

The Questor column

Edited by Philip Aldrick (Filed: 11/05/2005)

The thing about being a little fish in a big pond is that you either grow to fill it or get gobbled up by a bigger one. It’s an intriguing position for BG Group, the former exploration arm of British Gas that’s swimming with sharks such as BP and Shell.

Nicknamed Bid Gossip by some for the persistent takeover rumours, it is also growing rapidly. Yesterday’s first-quarter results showed production at 486,000 barrels of oil a day. BG plans to increase that to 580,000 by the end of next year.

The other thing about being (comparatively) small is that growth comes more easily. As a result, BG is priced at a slight premium to rivals such as 4.1m-barrels-a-day BP. It trades on 14 times forecast earnings and yields 1pc after yesterday’s 44pc increase in first-quarter earnings to £270m lifted the shares 1½ to 420p.

The stock has had a remarkable year, climbing from 325p on the back of soaring oil and gas prices as well as its own improved production targets. Long term, BG is basing its forecasts on oil at $23 a barrel and gas prices at 21p a therm – a fraction of where they are today.

There is little doubt BG is in robust health. It has 2.15billion barrels, or 13 years, of proved reserves and a further nine years of probable ones. The sale of its Kashagan field is expected to deliver net cash proceeds of $1.5billion. Its growth business – Liquified Natural Gas – is booming, while transmission and distribution, and power generation are both performing well.

Questor has been reluctant to throw its all in with such a premium priced stock, recommending holding at 350p in November and 395p in February. Oil prices have held firm and BG continues to outperform expectations, but we remain cautious. After years of rumours, few reckon a bid is imminent. Hold.

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