BG Group (LSE: BG.) (NASDAQOTH: BRGYY.US) recently shocked markets with yet another piece of bad news.
But here are five ways it could turn things round and make you rich.
1. By cutting out the bad news.
Unless you’re a short seller, BG Group will only have made you poorer lately. The share price is down 25% over the past two years, as the company spooked markets with a string of profit warnings. I bought shortly after the first, in October 2010, and congratulated myself on my opportunism. But more dire news at the end of January knocked the share price down 14% and wiped out all my gains, as it warned that production would disappoint both in 2014 and 2015. Delivering bad news appears to have become a habit, and BG will have to mend its ways quickly before it can charm markets again.
2. Because you’re getting in at the bottom.
When you’ve just suffered a fourth-quarter loss of $1.8 billion, down from $1.76 billion profit in the same period last year, it’s hard to convince anybody you will make them rich. So can BG Group do it? Only if you give it time. The attraction is that you’re buying on bad news, which means you’re getting the shares at a discount, and should benefit from any rebound (the stock is up 6% in the past week). The downside is that it still isn’t ravishingly cheap by conventional measures, trading at 13.8 times earnings despite its litany of woes.
3. By embracing risk.
Some 18% of BG’s production comes from strife torn Egypt. Political and social instability has forced it to declare force majeure at some of its liquefied natural gas operations in the country. This has hit output, as gas earmarked for export has been diverted to the local market. The result: a £1.2 billion post-tax impairment. BG also suffered a $1.1 billion impairment on shale gas assets in the UK. Natural gas sales to Asia have increased strongly, but could be in jeopardy if the emerging markets crisis spirals. How brave do you feel?
4. Trusting in management to deliver.
There has been some good news. BG Group is making progress in Australia and Brazil, where it continues to ramp up production. Capital spending is falling and it expects to be “free cash flow positive in 2015”. This means it should be free to increase payouts to investors, and top up its disappointing dividend. Right now, BG Group yields just 1.6%, although management has just hiked the full-year dividend by 10%, to 28.75 cents a share.
5. Because all the bad news is out there.
At least, I hope it is. Earnings per share are forecast to go nowhere in 2014, but things should look better in 2015, with a forecast rise of 24%. Can you stick around until then? The downside is that you don’t get much of a reward in the way of a dividend, which is still forecast to be a measly 1.9% by December 2015. Egypt remains a tinderbox, although the military may keep any insurrection in check. I continue to hold BG Group, but hopes of riches are beginning to look like an act of faith.
