BG Group Plc, the UKs third largest energy giant after BP and Shell, is an attractive investment story on many levels.
In Brazil, it has first mover advantage in the most exciting oil discovery for over forty years, the Santos Basin, which is estimated to contain at least 50 billion barrels of oil. Economical at just $40 per barrel the fields are expected to be a dominant factor in BGs production and cash flow growth for years to come.
It has an industry-leading LNG division, which is successfully building itself a brand new, long-term contracted, southern hemisphere business. Its operations in Australia for example are part of the country’s long-term energy plans, a country set to become the “Middle East of gas”. This helps smooth the group’s revenues because demand for gas there peaks when demand in the northern hemisphere is at its lowest.
It has a first rate management team with the uncanny knack of spotting the next big thing, from Brazilian oil fields to US shale gas.
On top of that the company is a prime takeover target for a super-oil major, such as ExxonMobil, looking for a quick-fix acquisition to remedy their dwindling reserves.
In conclusion, we believe that either the market or a predator is going to wake up to the quality of BG Group’s assets. Citibank and Goldman Sachs have recently reiterated their buy recommendations with price targets of 1500p and 1460p respectively. Trading at 1168p we rate the stock a strong buy.