BG Group shares given short shrift after forecast miss

BG Group is not being given the benefit of the doubt by investors, unlike its bigger rival BP Plc. after both released third-quarter results showing sizeable falls in headline profits.

That’s because again, unlike BP, BG Group’s figures are even worse than the company itself had forecast, so the market is understandably seeking reassurance BG is taking as adequate steps as its peer to keep costs in line and  growth on track.

BG’s total operating profit was $1.bn in the third quarter, beneath the company’s own consensus of analysts’ forecasts which foresaw $1.4bn.

BG explains the shortfall as being down to Egyptian output having been halved compared with the previous year to 55,000 barrels of oil equivalent per day (boepd) after the depletion of a reservoir in the region.

Investors are also not impressed by the fall of the average price of barrels BG reported– BG sold its oil at an average of $104 per barrel, down from $112 in the previous year, while its average UK gas price fell 17% to 37 pence per therm.

Revenue growth also below-forecast

Revenue however was higher at $4.6bn due to an expansion of Brazilian output to 100,000 bboe a day. That however still looks to be below average analyst estimates around $5.6bn.

Despite this BG lauded itself this morning for the surging output from Brazil, also noting it’s on track to deliver the first liquefied natural gas cargo by the end of the year from its Queensland Curtis project, offshore southern Queensland, Australia.

“Our developments in Brazil and Australia are progressing well and, in the case of Brazil, beginning to have a material impact on our business,” said BG Group’s interim Executive Chairman, Andrew Gould.

Overall, these are disappointing numbers with the fall in the price of crude oil by around 25% during the last four months well represented in BG’s earnings.

However investors may also be troubled by a number of further issues that have served to deplete income during the third quarter.

Investors have been looking out for an update on a far-reaching review of assets, to identify non-performing or non-core ones, in order to decide on potential disposals.

There’s no sign of that so far today.

Another thing missing: no guidance for 2015—the group said it will be provided with fourth quarter/full-year results on 3rd February,  this may turn out to be another cause of uncertainty amongst investors, rightly or wrongly (note BG has reiterated its full-year guidance for 2014.)

Saggy net income margin sums up a poor year

Underscoring the remarkably shallow performance BG is shaping up to post for the year, investors are likely to bear in mind that BG is now expected to show its second-worst ever net margin for a full-year by December 2014, of 13.4%.

BG’s worst unadjusted net income margin was minus 19.6% at the end of 2013, but its most meaningful marginal underperformance was when it posted 0.7% the year before.

On the whole, we are not surprised the share price loss  approached 3% earlier, and is still a loss of about 1.4% as I write this, adding up to a 21% fall in the year to date.

BG’s sector-underperforming dividend yield of 1.8% (almost 70% below a peer-group average) on a trailing basis will be brought into sharp relief by quarterly releases like today’s.

We think it’s feasible the shares will see 1019p in the medium term, as that was a nearby support and close to long-term lows; it would be the second visit to that level this year.

That support, and certainly no lower than the psychological 1000p, are likely to hold, though BG stock has been as weak as mid-980p levels during the last four years.