When Chris Finlayson took over as chief executive of BG Group at the start of the year, he set 12 objectives. As it turns out, the 12th was achieved this week, neatly in time for his first anniversary.
At the same time, but less noticed, Mr Finlayson has been revamping his team to focus BG on its two main strengths: its attractive position in the global liquefied natural gas (LNG) market; and exploration and production.
In November, BG saw the first production at the Jasmine field in the North Sea, operated by Conoco. Yesterday it announced that gas production had started at phase two of the Itau development in Bolivia.
Both are among those 12 key milestones for 2013. Not included, but arguably as important, was the first gas transported to its Curtis Island LNG plant in Queensland this week. It will be shipped out in the second half of this year.
I have been pushing BG shares for most of this year. They lost a quarter of their value on the shock profit warning in October 2012 and since then have looked heavily oversold — to the point where the company was even attracting suggestions that it might fall prey to an overseas buyer.
Part of the problem is that any business of this size has a number of moving parts, and the market tends to focus on those heading in the wrong direction. So interruptions to supply in the North Sea and problems in Egypt have dominated.
In Egypt, BG is mired in politically motivated diversions of its supplies to the domestic market. The country accounts for 18 per cent of all production and 14 per cent of earnings, and there is not a lot the company can do to influence events.
However, this has drawn attention away from the group’s improving financial performance. This year and next, capital spending will run at about $12 billion, but in 2015 this will fall to $8 to $10 billion as spending on projects such as Queensland ends, and BG will be cash-positive.
At the same time, production from the huge Santos field off Brazil will start to take off, trebling that year and hitting half a million barrels of oil equivalent a day by 2020.
As that cashflow kicks in, it will allow the market to get a clearer view of the value of BG’s underlying assets. The shares, up 22p to £12.57½, have gained 20 per cent or so this year from a low base after that profit warning and have outperformed the peer group. They sell on about 16 times earnings.
But I suspect, given all the above, that we are approaching an inflexion point with BG. This looks like a buy.
Along with Christmas cards and other seasonal goodies, Vodafone’s half a million private investors are seeing a circular on its sale of its 45 per cent holding in Verizon Wireless thumping through their letterbox.
The transaction, announced on September 2, is of necessity a complex one. As it stands, Voda will get a mixture of cash and shares in Verizon Communications, the company’s US partner in the Wireless joint venture, worth $130 billion. The UK company has pledged to return $84 billion (£51 billion) to its shareholders.
The shares element is worth £38.9 billion, and all this is being returned to investors. This means retail shareholders will from February 24 also be investors in a New York Stock Exchange quoted company of which they may know very little.
Voda had the option of taking that block of Verizon shares, selling it and passing the cash on to its own investors, which would have been simpler all round. It did not do so because a number of its institutional shareholders want to keep a holding in Verizon, which they think has good prospects.
The actual amounts shareholders will get in cash and shares have not been finalised and will not be known until the deal completes on February 21. There had been concerns that, with such a large number of shares in Verizon overhanging the market and potentially due to be sold in the new year, this might depress the share price.
This does not seem to have happened, though the strong Wall Street market will have helped. Voda set a “collar” of $47 to $51 on the Verizon price; had it gone above or below this, the terms would have had to be renegotiated. The shares are now just short of $50.
Voda shares, up 5¾p at 233½p, have advanced 20p since the deal was announced but are still worth holding, in my view. I see no reason why UK retail investors should want to keep their Verizon shares, and the company seems to accept that, because there is a free share dealing programme available for them to sell the shares for six weeks after completion, closing on April 4.
After that, you will have to pay. My advice is to sell as soon as the shares arrive and use that free facility.
A brave move from Panmure Gordon, though I hear Speedy Hire shares are on other investors’ lists for 2014. The broker has added the shares to its recommendations for next year.
The fallout from the revelations in late November of accounting irregularities at its Middle East operation has been fairly limited. The joint ventures in Abu Dhabi, to build four artificial islands, and in Kazakhstan are unaffected, and these will be huge drivers for growth.
Steve Corcoran, the chief executive, has done the decent thing and stood down. The irregularities will trim about £3 million off this financial year’s profits, which on Panmure’s numbers will be little changed at £16.8 million, and another couple of million thereafter, including the professional fees to look into the scandal.
Speedy has been investing heavily in its plant fleet, and this will mean a sharp acceleration of profits as usage rises. The shares were 64½p before the bad news broke; they added 1¾p to 59¼p yesterday. They sell on about 16 times earnings for the next financial year to the end of March 2015, which looks attractive enough.
Cambridge chipmaker ARM held a call for analysts with the theme “Internet of Things”. This explained how its chips are used in everything, and how as domestic appliances such as fridges and central heating systems were linked to the internet, connectivity would rise, as would the use of its products. Or as E.M. Forster would have it, “Only connect”.
Gilts
UK government bonds lost ground after the US Federal Reserve announced plans to scale back its enormous $85 billion-a-month bond-buying economic stimulus programme sooner than most had predicted. March gilt futures settled 38 ticks lower at 107.04. In the cash market, the yield on ten-year rose three basis points to 2.95 per cent.
Bet of the day
Spread-betters were selling US Treasuries after the Federal Reserve decided to pare its bond-buying programme earlier than most had expected. Though they rallied from their lows after the latest American job data proved worse than expected, ETX Capital quoted 129.257-129.297 on benchmark ten-year Treasuries.
Deal of the day
Earthport jumped more than 16 per cent to 28¼p after landing a big contract with Bank of America Merrill Lynch. The provider of cross-border money transfers will help the bank expand its clearing capabilities for low value, high-volume transactions. The contract will bring Earthport at least $11.3 million, largely in the first 30 months.
