News Column

BG boosted by buy note as FTSE 100 edges higher again

July 2, 2014

Nick Fletcher, theguardian.com



BG continues to be the recipient of City advice on restructuring its businesses.

The company has suffered a number of production downgrades and management changes and is looking for a new chief executive, while the City seems to tip it as a takeover target every time the share price weakens.

Canaccord Genuity is the latest to step in, moving its recommendation from hold to buy and raising its price target from 12.50 to 14.50 as it suggested BG could profitably sell some of its subsidiaries in Australia and Brazil. Canaccord said:

As we see it, BG's main appeal lies in the potential rebalancing of the portfolio in the next eighteen months, reducing capital employed and increasing free cash flow. Without portfolio restructuring the business still offers strong volume growth from 2015 onwards as Brazil and Australia ramp up. However, by 2020 BG's production would be highly concentrated in Brazil (around 50%). We see some dilution of the Australian and Brazilian exposure providing a pragmatic balance to the portfolio. This would proportionally reduce the reliance on these two areas but still not remove the bias towards Brazil. Importantly, we believe that material disposals in both countries would underpin BG's valuation, release capital for new investments, de- gear the balance sheet and allow a material cash return to shareholders.

We doubt that BG is a viable takeover target for the other oil majors. The large cap oils have stated repeatedly that they are focused on their own organic opportunities while at the same time disposing of assets that no longer meet their returns criteria and fail to offer long term growth potential.

Last week Deutsche Bank issued a buy note on the business, suggesting it could benefit from hiving off its liquefied natural gas business from exploration and production. Deutsche said:

With BG's board intent on 'accelerating the creation and delivery of longer term value for shareholders' we have a proposal - demerge LNG. Effectively creating two smaller but focused businesses, BG E&P and BG LNG, we look at the merits of such. We find two businesses, each with exposure to growth and an enviable position in its core market but with very different drivers, financial attributes and likely valuation bases - yield for LNG, growth for E&P. Smaller in scale, but still holding critical mass, each should also be better placed to encapsulate in its valuation a premium for strategic position and management control. Taken together with forward potential we set a new 12 month price target of 14.

But Canaccord said it believed such a split was unlikely :

The current LNG market environment makes the economic appeal of a standalone business unlikely, given that the capacity to secure third party volumes for arbitrage opportunities has changed in the last decade and current evidence from the US is contrary to a breakup, with the notable shift towards greater integration.

BG ended 25.5p higher at 1272.5p.

Overall the FTSE 100 finished higher for the second day, up 13.45 points to 6816.37 in the wake of recent reasonably positive economic data and the continuing support of central bank stimulus measures. But there was some caution ahead of Thursday's non-farm payroll figures from the US.

Miners continued to move higher following renewed signs of demand from China, with Rio Tinto rising 37p to 3239.5p and BHP Billiton 14.5p better at 19.59.

But Tullow Oil slipped 5.5p to 849.5p after the oil explorer and producer said it was writing off $415m after disappointing results in Mauritania, Ethopia and Norway. It will also incur a loss on disposal of $115m related to a project in Uganda. It kept its full year production guidance of 79,000 to 85,000 barrels of oil equivalent a day, and said 2014 half year profits were expected to be in line with forecasts of $650m.

A number of companies saw their shares go ex-dividend. These included Royal Mail, down 12.1p at 479.1p, Burberry, 19p lower at 14.60, and Babcock International, off 4p at 11.60.

Elsewhere Ocado recovered 48.8p to 403.8p after Tuesday's falls in the wake of its latest trading update. Analysts at Deutsche Bank become more positive on the online grocer, saying:

Management used the first half results to flag a cautious outlook on profit development in the second half, which we expect to lead to consensus full-year downgrades of around 5% on EBITDA and around 20%-30% on pretax profit. However, the share price is down 42% since its peak of 617p on 26 February. Given the limited downside to our reduced 330p price target, we upgrade Ocado from sell to hold.

Mothercare added 19.5p to 252p after it rejected a 300p cash and share offer from US group Destination Maternity.

But Blinkx slumped 34.25p or 52% to 31.5p after the internet video search specialist issued a profit warning, blaming industry wide issues and also the lingering effects of a disparaging blog about the company in January.

Shares in Vimto maker Nichols lost their fizz, falling 36p or nearly 45 to 919.5p after a court ruled it must pay 8m to settle a dispute with a Pakistani distributor Gul Bottlers over its right over the drink in that country.

N+1 Singer analysts said:

Nichols has updated the market on a previously flagged litigation issue. The outcome is worse than had been anticipated, with the cash cost to settle the dispute at around 8m (2% of market cap) versus the 2m expectation. Whilst the outcome is disappointing it is no more than a setback which Nichols can comfortably absorb and it draws a line under the issue. Importantly, it does not make a fundamental change to the investment case. Commentary on first half trading/full year expectations is positive and we would view any short-term weakness as a buying opportunity on growth considerations and fundamentals.

Finally Falanx, an AIM listed security and risk management consultancy, slipped 3.25p to 48p despite announcing an alliance with cloud computing specialists MDS and Skyscape to provide companies with a cloud based cyber defence service, previously only open to governments.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Guardian Web


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters