Edited by Yvette Essen
Last Updated: 1:03am GMT 08/02/2008
BG Group
£11.18 +41p
Questor says Buy
After two weeks of the oil and gas supermajors fretting over their growth prospects, BG Group swept in yesterday with a refreshing blast of good news. BG is a minnow compared with the likes of Shell, BP or Chevron, but these giants will be looking enviously at its forecasts.
On the face of it, bearish commentators will have spotted that production growth was, in fact, scaled back fractionally to between 6pc and 8pc per year to 2012. And the rate at which it is refilling its tanks was just 54pc last year.
But BG said that its resource base – unproven reserves – of 10bn barrels of oil equivalent was enough to sustain an annual average growth rate of 6pc-8pc through to 2020.
The profit figures may be better than expected, but it is important to look at the future long-term growth. Even if BG achieves these growth rates, progress will not be linear. The company may have years of feast or famine as some projects fail to meet expectations.
Prospects for the massive Tupi project off Brazil still look super-charged, although BG boss Frank Chapman seems to be fed up with people just banging on about this particular find. He’s going out of his way to emphasise BG’s other revenue “hubs”.
This is a fair point. The spread of assets is wide. BG, unlike many small companies which tend to be concentrated in one region or field, operates from the North Sea to Nigeria, Kazakhstan to Oman.
On top of yesterday’s positive update, BG added a further sweetener with a 30pc hike in the full-year dividend. This is a one-off re-basing, so investors shouldn’t expect a repeat next year.
Investors who followed Questor’s advice last February and bought the shares at 725p will have seen a tremendous return.
The good news flow coming from BG is most definitely in the share price, which trades at a near-100pc premium to the sector. Part of this is due to a bid premium, yet it is difficult to see who might pay another 20pc-30pc on top of a share price that is already looking expensive. Still, BG is firing on all cylinders. Buy on weakness.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/08/cxquest108.xml
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