Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at BG Group plc (LSE: BG) (NASDAQOTH: BRGGY.US) to ascertain if its share price can return to 1,565p.
Initial catalyst
Of course, before we can establish whether or not BG can return to 1,565p, we need to figure out what caused it to reach this level in the first place. It would appear that BG reached this high during the first quarter of 2011, partly due to a rally in the wider oil & gas sector.
However, BG’s rally to 1,565p was also supported by the release of an impressive set of results for 2010. In particular, the company revealed that earnings per share for the 2010 financial year had jumped around 20%. What’s more, back during the first few months of 2011, it was announced that BG was on-track to complete its ten-year growth plan, and management was upbeat about the future.
But can BG return to its former glory?
Unfortunately, since releasing this raft of impressive news BG’s performance has slowed and investors have been less than impressed. Indeed, during the past nine months BG’s earnings have actually contracted by 4%.
Nevertheless, despite this underperformance I feel that BG can return to 1,565p. You see, demand for liquefied natural gas around the world is actually rising faster than supply and this is set to continue for several years. As one of the world’s premier liquefied natural gas producers and traders, BG is set to benefit from this trend.
However, the company has acknowledged that it has made some mistakes recently — namely, trying to grow too fast and letting costs get out of control. As a result, BG is now seeking value over volume and this should lead to greater profits over the long-term, even if it means that revenue will slide in the short-term.
As part of this value over volume drive, BG is reducing its presence within the United States. This is likely to reduce the company’s oil production by 17,000 barrels per day.
In addition, BG is now refocusing its attention to upstream oil & gas assets, rather than the logistical, or downstream side. Production of oil & gas is generally more lucrative than the transportation and storage of hydrocarbons, so this shift in strategy should once again improve BG’s profitability.
Foolish summary
So overall, based on BG’s shift in strategy and dominance within the liquefied natural gas industry, I feel that the company can return to 1,565p.
