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Foresight and prices fuel BG’s power surge

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Foresight and prices fuel BG’s power surge

By Dominic Picarda

Published: June 28 2008 03:00 | Last updated: June 28 2008 03:00

Soaring energy prices have ignited a flaming performance at BG, with its shares doubling since last August. The oil and gas production arm of the former British Gas positioned itself beautifully for the current boom, thanks to some far-sighted management decisions.

It bought up liquefied natural gas (LNG) infrastructure in the US on the cheap some years ago, giving it a fantastic edge over the competition now that LNG imports are in high demand. Also, the firm has a stake in a recently discovered field of gas off the coast of Brazil. These features could make BG a takeover target for a larger rival, such as Shell.

Any potential buyer would have to pay top whack to secure BG. Although its overall market value of £40bn would not be too demanding, the steep valuation might make it hard for a takeover to produce a decent return on investment. BG already commands a punchy valuation of 23 times trailing earnings and a takeover premium would almost certainly be required to seal the deal.

Right now, the shares, having peaked at 1415p in May, are trading sideways above support at 1224p. Long-term support comes from the 21-week exponential moving average (EMA) at 1208p. The bottom of the daily Ichimoku cloud chart indicator is also close at hand, at 1221p until Friday July 11. But to resume its powerful five-year-old uptrend, BG needs to break through the 21-day EMA at 1260p and the top of the recent range at 1291p. Breaking out of the top of the daily cloud – whose highest point is at 1332p in the near-future – would confirm the bullish trend.

Then, the most obvious objective for BG is to retake that May all-time high of 1415p. Thereafter, the shares would be in “blue sky” territory, with no historic price points to restrain them. However, Gann Theory suggests that traders should watch 1536p and 1548p, where there is a cluster of significant percentage extensions from past major lows. A close below the 21-week EMA would quash this bullish view, if only temporarily.

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