In my last sector examination, Aviva was my pick of the FTSE 100‘s insurance companies, though it was a tough choice in an attractive-looking sector. Today it’s time to take a look at our oil & gas producers, some of which fill me with optimism.
It’s a less-populated sector this time, so we have just four big companies to look at, BG Group (LSE: BG), BP (LSE: BP), Royal Dutch Shell (LSE: RDSB) and Tullow Oil (LSE: TLW). To give us a nice round number and provide some comparison, I’ve also added Premier Oil (LSE: PMO), the second-largest oilie in the FTSE 250 and one with diversified geographical interests — I didn’t want to choose one focused on a single country or region.
Here’s a quick look at some fundamentals:
| Company | BG | BP | Premier | Shell | Tullow |
|---|---|---|---|---|---|
| Market cap | £38bn | £86bn | £1.8bn | £136bn | £9.1bn |
| Recent price | 1,125p | 456p | 339p | 2,184p | 1,033p |
| Share price growth | -16% | 5% | -7% | 6% | -32% |
| Historic EPS growth | 3% | -55% | 31% | -6% | -5% |
| Forward EPS growth | -4% | 36% | 43% | -4% | 0% |
| Historic P/E | 11.8 | 10.6 | 10.6 | 7.6 | 27.8 |
| Forward P/E | 13.8 | 8.4 | 7.5 | 8.0 | 22.8 |
| Historic Dividend | 1.7% | 5.3% | 1.6% | 5.2% | 1.0% |
| Forward Dividend | 1.6% | 5.2% | 1.1% | 5.3% | 1.3% |
| Forward Cover | 4.5x | 2.3x | 13x | 2.4x | 3.8x |
Share price growth is over the past 12 months, historic figures are for the last reported full year, forward figures are for the next forecasts.
First impressions
My first thought looking at these quick figures is that there are some screaming bargains in this sector, with global crises, weakening Chinese growth and other short-term panics depressing the market — and all at a time when oil is back over $100 a barrel, too!
But which is my favourite? Well, if you’re looking for smaller exploration-focused oil companies with strong growth characteristics, you might do well to examine Premier Oil more closely. With good EPS forecasts and a very low P/E, the firm is on a forward PEG (P/E divided by EPS growth) of only 0.2, rising to just 0.6 for 2014 forecasts — growth investors often look for 0.7 or less.
I’m not a growth investor these days, so I’m not going for Premier Oil here — but what’s left of a younger me does like the look of it.
Two more out
I’m going to drop Tullow Oil, too. The company has done magnificently well, growing its share price by around 5,000% since 1990. But it looks like the shares have been trading on past glories for some time now, and the price has fallen back more than 30% over the past year — and to me it still looks pricey compared to the others.
BG Group is also out for me, because there’s nothing there strikes me as especially attractive or out of the ordinary. The P/E is not extreme but not cheap, and dividends are low — and I do think the big oil & gas companies should be providing owners with decent income.
The big two
That brings me to BP and Royal Dutch Shell — I already have BP in the Fool’s Beginners’ Portfolio. And you know what? I just can’t choose between them. They both offer well-covered dividends of better than 5%. And earnings growth? Well, BP’s comes after a down year, and in the longer term I’d expect both to average similar rates of growth.
BP’s Gulf of Mexico catastrophe is almost entirely in the past now, and doesn’t give me any cause for fear — but at the same time, there’s little disaster-discount to be had these days, either.
So it’s a dead heat this time, because both BP and Shell just look way too cheap to me — I expect both to reward shareholders handsomely over the next 10-20 years.
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> Alan does not own any shares mentioned in this article.
