Why BG Group plc Will Be One Of 2013’s Winners

With energy prices rising, it’s hardly a surprise that companies producing oil and gas have been doing well this year.

BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) is one of them, with its share price up 24% since the start of 2013, to 1,260p today — and that’s soundly ahead of the FTSE 100‘s gain of just 13% over the same timescale. BG’s forecast dividend yield, at only around 1.5%, is actually beaten by the FTSE’s average of 3.1%. But that still leaves BG shareholders way ahead and looking likely to remain that way by year-end.

Investing for growth

What lies behind BG’s strong share price performance?

Well, at the end of the first-half, production was down 2% as expected with underlying earnings per share down 3% to 63.8 cents, but the interim dividend was lifted 10% to 13.07 cents per share. And a number of key milestones had been achieved, with good progress made in Kazakhstan, Brazil, Australia and Tanzania — though ongoing unrest in Egypt had diverted more liquified natural gas (LNG) than expected away from international markets.

Strength through diversity

That highlights two of BG’s key strengths. One lies in its geographic diversity, with the company operating in 25 countries scattered across all six of the available continents — BG is a far less risky investment than oil production companies focused more narrowly in specific regions or in single countries.

The firm also benefits greatly from being one of the world’s major players in the LNG business — it’s the largest supplier of LNG to the United States.

At the third-quarter stage, earnings were down 4% with production down 10%, again pretty much in line with expectations, although the ongoing situation in Egypt did add to expected reduced activity in the USA along with some planned shutdowns.

The future starts now

This is all in line with City forecasts for a 2% fall in earnings per share for the year to December 2013, which would put the shares on a P/E of a slightly above-average 16. But there’s an EPS rise of 10% currently penciled in for 2014, and that would drop the price to earnings multiple down to 14.6, which looks comfortable.

And those 2014 expectations are looking realistic, after chief executive Chris Finlayson told us at Q3 time that the company’s priorities lie in “the delivery of our 2013 milestones and of our growth projects” with a number of major projects proceeding either according to or ahead of plan.

That’s all setting up BG for some good years ahead of it, and that’s why shareholders should end up on the winning side in 2013.

And finally...

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> Alan does not own any shares mentioned in this article.