Tuesday share tips: BG Group, Ricardo

10th Sep 2013 08:01

Integrated natural gas company BG Group's decision to cut its guidance was due to geopolitical factors - in Egypt - and technical factors - in Norway. Nevertheless, the third reason behind that lower forecast - its decision to reduce the number of rigs operating in North America, is sensible. All in all that is the normal reshuffling one would expect from a group of BG's size and with such diverse assets. In fact, the two real drivers for growth remain unaffected. The Queensland liquified natural gas refinery is on schedule and the huge Santos Basin, off Brazil, is progressing and this year BG announced ten more licenses at the Barreirinhas Basin. Over the next three years, resources will be added at twice the rate they are being depleted, a ratio a number of the oil majors would covet. It is a puzzle why BG seems to be rated as a mature oil producer rather than as a fast-growth explorer. The shares, before yesterday's fall, were approaching the level they were at before October's shock warning. There seems no reason why they should not get back there again, writes The Times's Tempus. BG Group's grip on its status as an oil and gas major - only recently acquired - has slipped again. Yesterday's cut to its production outlook was the third in a year. Yes, it was not terribly large, but it was a very big disappointment. Furthermore, its new target is contingent on a recovery in US natural gas prices and events in Egypt. To be had in account as well, the company is operationally and financially stretched. It is also dependant on Petrobras to extract maximum value from its Brazilian assets. So it is not the master of its own fate in production. Despite all of the above the company still trades on a 20% premium to the European integrated oil sector. If BG can no longer deliver exploration successes - which enabled it to stand out from the crowd - as now seems to be the case, then it is hard to see how that premium is justified, the FT's Lex column says. Specialist consultant and engineer Ricardo has trumped the sceptics who cropped up this past summer. Some observers apparently had reservations regarding the purchase of AEA from the administrator. However, the unit has performed better than expected and Ricardo's stock price recovered in due course. Further, the firm still has enough cash on hand to carry out acquisitions should any interesting opportunities appear. Worth pointing out in that regard, Ricardo is apparently looking at the water sector for potential purchases. On the downside, it did lose some work to a German lorry maker and Jaguar Land Rover, an old client, but its order book closed the year at £121m. Ricardo has picked up another £42m of work since, impressive in what is usually a quiet time. The shares sell on about 13 times' this year's earnings; progress henceforth may not be so stellar, but they look to have further to run, Tempus says. ABPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.