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Eyes Down For BG Group plc’s Results

We had a 2014 profit warning from BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) on 27 January, ahead of 2013 full-year results due on 4 February, and it hit the share price pretty hard.

On the day we saw a fall of 173p, or 13.8%, and since then the price has dropped a further 42 pence to 1,040p for an overall slump of 17%. By the middle of January, BG shares had been up around 17% over the previous 12 months, but now they’re showing a loss of nearly 10%.

Production set to fall

BG now expects production for the current year of 590-630,000 barrels of oil equivalent per day (boed), which is significantly below analysts’ forecasts of 660,000. Output should grow again by 2015, to 710-750,000, but that’s still below previous expectations.

The problems stem partly from the diversion of gas supplies in Egypt to the domestic market, leading BG to issue Force Majeure notices to contracted buyers and lenders as the diversions in the fourth quarter of close to 1bn standard cubic feet of gas per day are pretty much swallowing up the firm’s total production capacity. BG also said it has seen volume drops in the USA.

2013 unchanged

At the same time as delivering the blow to this year’s hopes, BG told us its production guidance for 2013 is unchanged and that it expects to have delivered around 633,000 boed, and that it should be reporting a total operating profit from its LNG Shipping & Marketing operation of around $2.6bn.

But BG expects to see non-cash, post-tax impairments of around $2.4bn, with about $1.3bn stemming from Egypt and $1.1bn from the US. That should leave total earnings of approximately $2.2bn, representing a drop of 33%, for the equivalent of 65 cents per share.

Dividends

This recent update said nothing of dividends, but for the first half of the year BG paid an interim dividend of 13.07c per share, for a rise of 10% on the same period a year previously. That’s in accordance with the company’s policy, and amounted to 50% of the previous full year’s payment.

The current analysts’ consensus suggests a full-year dividend of around 28c per share, which would be 7% more than 2012’s payout, although the production problems in Egypt and the USA could mean a couple of years of stagnating, or even falling, payments.

But dividends have traditionally been covered around five times by earnings, so BG could probably afford to sit it out and keep the payments going. Still, it’s not as if BG is an income investor’s dream anyway, with yields only around 1.5%.

Recovery?

Earnings forecasts prior to the warning put BG shares on a P/E for 2013 of 13.6, falling as low as 9.9 based on 2015 forecasts. But those look certain to be revised once we have next week’s full-year results. But even so, the shares don’t look excessively priced now and could make a good pick for recovery.

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> Alan doesn't own any shares in BG Group.