BG Group was up until recently the darling of the FTSE 100, with annual growth predict from now until 2020 to be 8% per annum. In short, a recent market update from the company left the market dumbfounded. As growth is predicted to be just 3% for this year and remain the same through 2013.
So was the market sell-off, of BG shares overdone in a word, yes. BG Group has seen its share price drop from around 1325p in October to 1020p today. One must note that the lost production for the next two years is due to delays at various exploratory locations around the world and production will fall back in line with BG's growth predictions after this. The resources are still there and waiting to be extracted, BG Group has not lost out on potential output, there have just been unexpected delays - such as oil rig leaks and implementing systems which will ensure less maintenance at BG's sites in the future. The sell-off of BG shares over the past two weeks has been overdone, the reaction was as if BG's resource assets where over estimated and that there is less oil and gas then was initially expected; this is not the case.
Furthermore, the economic conditions in the Eurozone and some US economics figures have also weighed in on the FTSE, resulting in further drops to share prices.
Important: Due to BG Group's uncharacteristically low share price, there has been wide spread market speculation that one of the cash rich Oil Majors, such as Shell or Exon, could table a bid for BG Group in the coming weeks. In order to realise the value of BG Group's assets and extract there growth potential. Currently BG Group's asset value should place its share price at 1900p, therefore the current market price, seriously undervalues the company. A potential bid price could range from 1300p to 1450p a share.
Currently the average analysts share price ratings for BG Group over the coming year range from 1350p to as high as 1900p. Therefore representing a serious investment opportunity.
Our recommendations:
BG Group: Buy
Buy: 1020p
Stop loss: 980p
Short term profit: 1200p to 1250p - a note to the short term investors, this price could rise dramatically if a takeover bid emerges.
Medium term profit: 1500p
For the long term investor hold out to 1900p
