In recent days I have looked at why I believe BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) is an extremely hazardous stock selection (the original article can be viewed here).
But, of course, the world of investing is never a black and white business — it take a variety of views to make a market, and the actual stock price is the only indisputable factor. With this in mind I have laid out the key factors which could, in fact, thrust BG Group skywards.
Price pressure creates exceptional value
BG Group’s share price has failed to recover after fall off a cliff in late January. The move was prompted by the company’s decision to declare force majeure at its liquefied natural gas (LNG) operations in Egypt, as the government there continues to divert output to the domestic market.
These problems forced the firm to significantly downgrade its production guidance for 2014 and 2015, with predictions for these years downgraded by approximately 10% from previous expectations.
Although difficulties in the US are also weighing on the oil giant’s production outlook, the commencement of production at BG Group’s monster LNG project in Queensland, Australia in the coming months — not to mention galloping progress off the coast of Brazil — is expected to drive earnings skywards over the long-term.
So for many, BG Group’s recent share weakness is considered a prime bargain-hunting opportunity. The business is currently dealing on modest P/E ratings of 15.6 and 12.8 for 2014 and 2015 respectively, figures which compare extremely favourably with a forward average of 27.7 for the entire oil and gas producers sector.
On top of this, a price to earnings to growth (PEG) reading below the value benchmark of 1 — at 0.6 — for next year underlines the firm’s exceptional cheapness relative to its earnings potential.
Dividend growth expected to fly
Despite the firm’s recent travails, BG Group elected to raise the full-year dividend 10% in 2013, to 27.75 US cents per share, on the back of its bubbly long-term earnings prospects and robust balance sheet.
And City analysts expect strong growth to persist well into the future. Indeed, payout hikes are expected to run at a similar rate over the next couple of years at least, with dividends of 30.5 cents and 33.5 cents anticipated for 2014 and 2015.
With capital expenditure expected set to continue declining in the medium term, and the firm aiming to become free cash flow positive from 2015, the stage looks set for payouts to continue rolling should its suite of exceptional fossil fuel assets deliver the goods.
