BG gains on latest break-up speculation
A new twist on break-up speculation meant BG Group outperformed a falling market.
The latest theory, via Deutsche Bank, was that BG should spin out its liquefied natural gas (LNG) business. Bundling the assets together would refocus BG on production growth, as well as taking the pressure off management to sell down its prized exploration fields in Brazil, the broker said.
BG “contains two distinct and attractive businesses – one focused on the LNG chain, the other Brazilian oil”, said Deutsche. But the group’s scale and disparate focus had undermined management’s ability to maximise value, as well as repelling potential bidders, the broker said.
BG promised accelerated disposals after Chris Finlayson was removed as chief executive in April in an apparent row over strategy. But with sellers of oilfields outnumbering buyers, the strategy risked diluting long-term value, said Deutsche.
Instead, BG should create an integrated LNG producer by bundling gas fields together with its shipping and marketing businesses. The predictable cashflows from such a business would attract yield investors as well as being able to wear most of BG’s $14bn of net debt, Deutsche said.
It reckoned a separate BG LNG would be worth about 720p per share based on peer multiples. The remaining BG business, with sector-leading growth coming from its Santos basin project in Brazil, would have a valuation of at least 700p, it said.
BG closed up 2.5 per cent to £12.71. The stock has advanced 10.9 per cent since Mr Finlayson left.
A quiet wider market left the FTSE 100 lower by 24.64 points or 0.4 per cent to 6,800.56.
Kentz jumped 32.2 per cent to 929p after Canada’s SNC Lavalin made a 935p-cash-per-share bid for the oil services engineer. A binding recommendation from Kentz’s largest shareholder and SNC’s use of a scheme of arrangement for the deal both pointed to very little chance of a counterbid, dealers said.
Analysts saw little readthrough for UK sector peers, which do not overlap Kentz’s niche of upstream cost-plus services. Cape was 3.5 per cent higher at 298p and Lamprell rose 2.7 per cent to 151.3p.
Amec, which last year had offers for Kentz of up to 580p rejected, was down 1.3 per cent to £12.33.
Lonmin gained 4.5 per cent to 259.6p on reports that South Africa’s Association of Mineworkers and Construction Union had accepted a wage deal, ending a five-month strike by platinum workers. The stock has tumbled about 21 per cent since the strike began.
Other miners were supported by Chinese data suggesting that manufacturing activity was at a seven-month high. BHP Billiton was up 1.9 per cent to £19.38, Rio Tinto gained 1.6 per cent to £31.27 and Fresnillo added 1.7 per cent to 861p.
Foxtons lost 4.3 per cent to 268p after Goldman Sachs started coverage with a “neutral” rating. It saw Howden Joinery, up 2.2 per cent to 296.7p, as a better-value play on the UK housing market.
Smith & Nephew lost 1.9 per cent to £10.59 after it temporarily suspended US distribution of wound therapy product, having been told that product required new regulatory clearances. Morgan Stanley reckoned the halt would only cost S&N about $15m of sales, or about 1 per cent of the group total.