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BG Group had a dreadful finish to last year as the collapse in the price of oil saw profits plunge and capital expenditure forecasts were cut. The annual figures saw the company swing from an operating profit of $4.2 billion to an operating loss of $1.4 billion. The collapse in the energy market forced the company to register a pre-tax non-cash impairment of $8.9 billion. BG Group has been hit particularly hard by the decline in the oil and gas market, and the company witnessed its net debt position increase by nearly 13%. Falling commodity prices combined with rising levels of debt is a dangerous mix.
Even before the takeover offer from Royal Dutch Shell, BG Group was planning on cutting capital expenditure and it was going to be ‘significantly lower’ than the previous year. The approach was clearly well received by BG Group shareholders, and the move was well timed by the Netherlands-headquartered firm as BG Group’s share price was not far off a six-year low. The shareholders of both companies are happy with the deal and the regulator doesn’t appear to be stopping it. The new mega-group will save approximately $2.5 billion per year through synergies, and Royal Dutch Shell will pick up valuable assets such as vast oil reserves off the coast of Brazil and the floating liquefied natural gas (FLNG) project in Australia. No further details of job cuts or internal restructuring have been announced, but this tie will help both companies survive the downturn in the energy market, which ironically is showing signs of improvement — oil is up over 40% from the low in January.
BG Group is set to reveal its first-quarter figures at the end of this week, and the consensus is for revenue of $15 billion and adjusted net income of $1.33 billion. The fourth-quarter figure from the energy company was mixed; the revenue was $4.42 billion and adjusted net income was $915 million, while the market was anticipating $5.37 billion and $559 million respectively.
Investment banks are very bullish on BG Group. Out of the 29 ratings, 11 are buys, 16 are holds, and two are sells. The average target price is £12.94, which is 7.7% above the current price. Equity analysts hold a slightly bearish outlook for SSE, and out of the 23 recommendations, seven are buys, eight are holds, and eight are sells. The average target price is £15.33, which is fractionally below the current price.
The share price went through a correction in the wake of the takeover offer, but has found stabilisation in the £12 region. Any drifts lower and the stock should find support in the £11.50 region, with the recent high of £13 as the target.