Today I am outlining why BG Group (LSE: BG) may prove a canny growth selection.
New man heralds new era
In securing the services of Helge Lund from Norwegian state producer Statoil, troubled oil major BG Group has pulled a rabbit out of a hat in its search for a new chief executive.
The post has remained vacant since former chief Chris Finlayson fell on his sword during the spring, and the British firm has had to pay out big — Lund will be welcomed with a £12m ‘golden handshake’ when he takes the reins in March, and could earn up to £13.5m per year — to resolve the lack of leadership.
Although the share price has failed to explode following the news, the City is in agreement that the appointment of the 51-year-old is a hugely positive step. Indeed, Investec commented that “in terms of global industry leaders, it is hard to imagine a more suitable candidate,” adding that “BG still faces challenges, but we believe it has a better chance of addressing them with Lund on board.”
In particular, the broker advised that the new man’s experience in the North Sea, Tanzania, Brazil and the US shale sector should boost BG Group’s operations in these areas. On top of this, Statoil’s position as a major gas supplier to Europe should also come in extremely handy.
Earnings bounceback expected next year…
BG Group has seen earnings gradually erode during the past few years due to a multitude of operational problems, culminating in the company posting a fractional decline, to 128.6 US cents per share, last year.
And City analysts expect things to get a lot worse before they get better, with a 12% dip pencilled in for the current 12 months to 112.6 cents. But the comeback is anticipated to kick into gear from 2015, when a 10% increase to 123.4 cents is anticipated.
This year’s expected collapse leaves the firm dealing on a P/E readout of 15.1 times, perched just above the benchmark of 15 which represents decent value for money. And 2015’s solid improvement pushes this to just 13.8.
… but bottom-line rebound is not assured
The new CEO will not come equipped with a magic wand, however, and BG Group still faces a multitude of headaches to deal with.
Even though the Egyptian government agreed to shell out $350m to the firm this month in backdated payments, the country still owes a colossal $1.2bn to BG Group. Given the difficult economic and geographical backdrop expectations of further payouts cannot be taken as a given.
The business has been forced into issuing a stream of production downgrades as a result of problems in the country, while it has also been whacked by a slower-than-expected production ramp-up at its gigantic Queensland-Curtis LNG project in Australia. With global oil prices also expected to continue heading south due to abundant supply, BG Group still remains a huge growth gamble in my opinion.
